Fixed Income Asset Allocation

10 November 2021
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Fixed Income
Fixed Income Asset Allocation Rates
Something’s gotta give Global
 The long segment of the US curve has potential to steepen,

given significant flattening already in the forwards
 Recent behaviour of some developed market central banks is
an admission of the lower-for-longer rates outlook
 The BTP market presents a predicament for the ECB so
communication will have to be just right
US long end – next move is steeper Page 4

Steepening at the front of the curve on tightening expectations and flattening at the
back-end presented a surprise to many, which we think could soon move into Steven Major, CFA
Global Head of Fixed Income Research
reverse. Given the historically flat level of the long-end forward curve we think the The Hongkong and Shanghai Banking Corporation Limited
next big move is likely to be a steeper curve, and on this call we can take the risk of steven.j.major@hsbc.com.hk
being too early. Furthermore, if inflation expectations decline next year there will be +852 2996 6590
more reason to push-back against rate hikes, also supporting a steeper curve.
Eurozone non-core moved to mildly bearish Page 14

The ECB may want to keep the door open to policy tightening but it does not want
excessive BTP spread widening. Tools that have been used in the past to close
spreads, such as PEPP, have also been used to ease monetary policy, so the ECB
will have to get the communication right.
Australia and the UK giving the same message Pages 24 and 16

The RBA and BoE are essentially giving the same message to global fixed income
investors: “if and when rates do go up, they will not go very far”. Whilst Australia’s
central bank may have given up on yield curve control, we note that the long-end
forward yields have met with some resistance. Meanwhile, the BoE seems to have
learnt from the past and is showing that it is conscious about hiking too soon when so
close to the lower bound.
Japan sees increased overseas interest Page 23

The diversification properties of investments in JGBs have been especially clear
through the volatility in global fixed income these last two months. Overseas
purchases have picked-up too. There may be no yield on JGBs, but hedged returns,
adjusted for risk, are more appealing.
It was a bond market recovery of sorts Page 3

The decline in long-dated yields may have caught many market participants by
surprise but it meant global fixed income losses from the last month were largely
reversed. Exceptions since the last Fixed Income Asset Allocation (13 October) were
HSBC 2022 Credit Outlook Virtual Seminar
Australia government bonds and Asia credit, with the end of yield curve control and
the sell-off in property names, explaining the underperformance, respectively. Tuesday, 07 December 2021
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Fixed Income ● Rates
10 November 2021
Contents
Conviction snapshot 3
Global direction 4
Americas 7
US 7
Canada 9
USD supras & agencies 10
USD credit 11
Latin America 12
EMEA 13
Eurozone core 13
Eurozone non-core 14
Euro breakevens 15
UK 16
UK breakevens 17
EUR supras and agencies 18
Covered bonds 19
European credit 20
GBP Credit 21
CEEMEA rates 22
Asia-Pacific 23
Japan 23
Australia 24
Indonesia 25
Asia credit 26
Green bonds 27
Currencies 28
Convictions and forecasts 29
Disclosure appendix 35
Disclaimer 39
2
10 November 2021
Conviction snapshot
Table 1. The HSBC conviction snapshot: our one-month views on the fixed income asset classes
_____________ Index _____________ _____ Index yield _____ _____ Returns (%) _____
Market Conviction Name Duration 8 Nov (%) 1 month (bp) 1 month 3 month YTD
US Treasury ◄ Neutral ► LUATTRUU 7.16 1.11 4 0.89 -0.36 -2.13
Euro core ▼ Mildly bullish ▼ I05760EU 8.53 -0.44 -11 1.32 -1.12 -1.95
Euro non-core ▼ Mildly bearish ▼ LTITTREU 7.79 0.49 -3 0.52 -1.35 -1.15
UK gilt ▼ Neutral ▼ LSG1TRGU
13.12 0.78 -23 5.72 -1.06 -3.77
Japan govt ◄ Neutral ► BEPAGA 9.78 0.10 -2 0.21 -0.35 0.03
Canada govt ▲ Mildly bullish ▲ I05500CA 7.21 1.36 15 0.00 -1.79 -4.49
Australia govt ◄ Neutral ► BEASGA 7.00 1.46 23 -1.08 -3.43 -3.86
Global inflation ◄ Neutral ► iBoxx inflation 12.40 -1.80 -17 1.73 -0.48 -0.05
Covered ▲ Neutral ▲ iBoxx EUR Covered 5.27 0.01 -9 0.52 -0.94 -1.30
Euro SSA ◄ Neutral ► iBoxx Sub-Sovereigns EUR 8.29 0.30 -13 1.25 -1.14 -2.16
USD SSA ◄ Neutral ► iBoxx Sub-Sovereigns USD 4.25 1.51 -2 0.22 -0.35 -0.60
EM EXD ◄ Mildly bullish ► BSSUTRUU Index* 8.83 4.59 -1 0.30 -1.60 -2.12
EM LCD ◄ Mildly bearish ► EMLCTRUU Index** 7.11 3.92 21 -0.17 -2.01 -2.17
EUR IG ◄ Neutral ► iBoxx EUR Corporates 5.39 0.56 -5 0.37 -0.94 -0.25
EUR HY ◄ Mildly bullish ► iBoxx EUR High Yield 3.45 2.86 8 0.32 -0.14 3.45
GBP IG ◄ Neutral ► iBoxx GBP Corporates 8.18 2.02 -33 3.00 -0.63 -1.78
USD IG ◄ Neutral ► Bloomberg US Corporates*** 8.77 2.17 -2 1.72 0.51 -0.34
USD HY ◄ Mildly bullish ► Bloomberg US High Yield*** 3.90 4.03 -26 0.87 1.32 5.10
Asia credit ◄ Mildly bullish ► iBoxx ADBI 5.81 3.08 6 -0.43 -1.37 -0.89
 down ------ yields ------- up 

Source: Bloomberg, iBoxx, HSBC. Direction of arrows indicates change of view from last month’s Fixed Income Asset Allocation. Figures as of close 8 November 2021. Notes: Bloomberg indices are used except for
inflation, covered bonds and SSAs, which use iBoxx. Germany is used as a proxy for the Eurozone core (I05760EU) and Italy for the periphery (LTITTREU). Indices are local currency except for inflation and EM which
are US dollar based. Euro corporates, covered bonds and SSAs are euro-denominated. *Bloomberg Barclays EM USD Aggregate: Sovereign Index, **Bloomberg Barclays Emerging Markets Local Currency
Government Index, ***Bloomberg Barclays US Corporate/High Yield
3
10 November 2021
Global direction
 Higher yields at the US front-end are attractive given our view that
rate hikes won’t get very far, if and when they start
 By contrast long-end forward yields look historically low, so in
combination we prefer to position for a steepening of the curve
 The curve view is more likely to come right if inflation expectations
have peaked, and, as we suspect, fall back through 2022
Steven Major, CFA

Something’s gotta give
Global Head of Fixed Income The different behaviour at the front- and back of the yield curves is consistent with the lower for
Research
The Hongkong and Shanghai long theme (see Learning to live with it, 27 Sep 2021). Our view is that if and when policy rates
do go up, they will not get very far. Indeed, only last week, hawkish expectations were
steven.j.major@hsbc.com.hk
+852 2996 6590 dramatically reversed in the UK and Australia, whilst the leaderships of the Fed and ECB have
Lawrence Dyer done their bit to push-back against markets priced for early rate hikes.
Head of US Rates Strategy
HSBC Securities (USA) Inc. It appears the hard-form decoupling between the short- and long-ends of yield curves, where
lawrence.j.dyer@us.hsbc.com
+1 212 525 0924 yields move in the opposite direction, caught many by surprise. Taking US Treasuries in
October as an example, 30-year yields fell 10bp, whilst the two-year increased by 23bp.
At its recent peak the two-year reached 50bp on 27 October, reflecting a very hawkish view of
the Fed, in that it was discounting rate hikes in 2022. Throughout this period the 10-year
The yield curve has pivoted increased by a modest 10bp. All the action was elsewhere, as the curve steepened at the front-
around the mid-section
end and flattened in the long end.
Market Segmentation Theory (MST) explains how one part of the curve can move in the
opposite direction to another, supposedly – and according to the theory – because of
differences in the balance between demand and supply. Our preferred approach is that the
curve segments have competing interpretations for the likely path of the short rate. This Pure
Expectations approach exposes an opportunity on the yield curve, where it says there is
something potentially inconsistent, whilst the MST informs an ex-post narrative.
Figure 1. Long-end of USD forward swap curve already very flat
90 2003 selloff Lehman Taper Trump COVID-19

collapse tantrum elected
70
30-10yr (1yr fwd, bp)
Forward swap curve is close

50
to significantly flat levels
30
10 4
-10 US 1YFwd 10s30s curve
-30
-50
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021
Source: HSBC, Bloomberg. Note: 30-10 year swap yield, one year forward, created from the difference between 1Y10Y and 1Y30Y. 5-day moving average used.
4
10 November 2021
We think the long-end of the curve has potential to steepen, particularly if, as we expect, the
expectations of early rate hikes have gone too far. History appears to support this view (see Figure
1), with the 10-30 year segment of the curve close to historically flat levels, when viewed one year
forward. Given that the spot 30-10-year Treasury curve is +43bp and the one-year forward equivalent
Inflation expectations and is 26bp, the market is already implying 17bp of flattening. (8bp for swaps used in the chart).
rate hike expectations
increased together Forwards are at odds with our view
For us to be right it is likely that inflation expectations will have to start falling back towards levels
consistent with the Fed’s target. Again there has been some divergence, this time between the
inflation expectations and the flattening of the curve (see Figure 2). Here we use five-year forward
measures to be consistent with the approach of policymakers who want to look through the cycle,
and in the case of inflation, are watching to make sure expectations are anchored.
From Figure 2 we see that significantly flatter long maturity curves tended to occur near the end
of tightening cycles, and with long-term forward yields near the peak rate (taken from the
previous cycle). This means flattening positons face the risk of negative carry and/or mean
reversion. For us this represents a change from favouring the ultra-long segment of the curve
(see What really matters 9 Jun 2021). We note, for example, that the 10Y30Y Treasury forward
is 80bp lower than the peak reached back in March.
Over the past decade we have found that market sell-offs – ie those that pushed US yields
higher – found resistance 0-25bp above the level implied by the FOMC’s median dot scenario.
The latter is calculated using the pure expectations constructed around a range of scenarios for
the initial rate hike, subsequent path, and terminal rate. What this says to us is that investors
Our forecasts are unchanged recognise that the top of the range for yields tends to be set by the Fed’s guidance.
and include 1.0% for US 10-
years end-2022
At the other extreme there have been many observations of bond yields 100bp or more below
those implied by the FOMC’s median dots, reflecting over-optimism in the latter. We think this is
understandable as the FOMC would want to avoid sending a bearish signal on the economic
outlook or that it does not expect to meet its own inflation and full employment objectives. Our
forecasts tend to be at the bottom of the range and this is reflected in our end-2022 yield
forecast of 1.0% for the US 10-year (see Mark-to-market, 13 Oct 2021).
Applying pure expectations to the yield curve

What the yield curve is telling us today is the opposite of what it was signalling back in March,
when yields peaked for the first time this year. As we described above, the two-year sector is
priced to an aggressive set of Fed hikes, whilst longer maturities are priced well below the Fed’s
guidance. To our mind, the probability that both the FOMC hikes aggressively (as implied in short
rates), and that long forwards remain priced to a dovish view of the longer run dot, is very low.
Figure 2. Something’s gotta give
2.40 Brent falls to $37 Trump First US tariffs 25bp Fed FAIT Biden elected
Big divergence between
per barrel elected hike 35
rising inflation expectation COVID
2.20 -19 2.22
and flatter curve 25
2.00
Slope (bp)
Yield (%)
1.80 15
-8
1.60
5
1.40 US 5YFwd 10s30s curve
US 5Y5Y BE
-5
1.20 -7
1.00 -15
2014 2015 2016 2017 2018 2019 2020 2021
Source: HSBC, Bloomberg. Note: 30-10 year slope calculated as 5Y30Y minus 5Y10Y nominal yield.
5
10 November 2021
There is a tendency to treat a bullish or bearish view as applying to all maturities on the yield
curve, whilst as we have just seen from the hard-form decoupling between short- and long-
ends, we know this does not always hold true. The front-end has reacted to shifts in the Fed
outlook and the long end to a wider narrative linked to the market’s expectations for the longer-
run funds rate. Back in March, a 15bp two-year T.Note yield had no hikes priced in. In contrast,
2.45% for the long bond yield was implying a terminal funds rate near 3%, given where the
10Y30Y forward yield was at the time.
Given our dovish view on So with our dovish view, the front-end of the yield curve offers excellent value near the recent
rates we like the front-end of yield highs. Our current tactical outlook reflects the risk-versus-reward for the competing market
the rates curve narratives, rather than a single view on what’s going to happen. Table 2 shows the yield curves
consistent with various bullish and bearish Fed tightening scenarios. For example, the first
scenario assumes a +25bp rate hikes in June and December 2022 and then a 100bp per year
rate hike path to a 2.75% longer run dot valuation. The terminal rate reflects the typical premium
to the longer run dot when the market fears rate hikes.
Referring to the table, we generate a “hawkish data” scenario which has early Fed rate hikes
pushing the two- and 10-year to 0.5% and 2.1% respectively. The “5th dot” represents a more
dovish scenario by taking the path from the fifth lowest dot. According to Bloomberg’s Fed
spectrometer, both of the potential 2022-26 Fed chairs, Jerome Powell and Lael Brainard
(Bloomberg) are likely to place their forecasts either at or slightly below the fifth dot’s rate path.
As the 10-year Treasury yield is close to that generated by the 5 th dot scenario (1.44%), a
significant drop in 10-year yields would likely require a negative economic surprise. This
scenario points to a 13bp “fair value” for the two-year note.
We cannot hope to predict a surprise, which is why the 2021 year-end forecast for the 10-year is
There would have to be a
very hawkish turn to justify 1.5%. Our end-2022 forecast of 1.0%, however, reflects our view that there is a higher
yields above 2.0% probability of a shift to a significantly more dovish outlook as seen in the lower half of the table.
In this case we would expect the curve to steepen, as hikes are removed from the funds path,
before moving to such a scenario. The risk case to our view is that there is a far more
aggressive set of rate hikes, which would require the Fed to alter its transitory view of inflation.
Table 2: Front-end priced to relatively hawkish scenarios for the path of rates
Scenario Maturity 1Y 2Y 3Y 5Y 10Y
Current yield curve as on 05/11/2021 0.14% 0.39% 0.65% 1.06% 1.46%
Hawkish data June 22 start 0.75 end 2022, 1.75 end 2023, 2.75 end 2024 0.18% 0.51% 0.95% 1.64% 2.11%
Median dot Upper bound 2022 to 2025: 0.375, 1.125, 1.875, 2.5 0.10% 0.25% 0.55% 1.20% 1.76%
5th dot Year end 2022 to 2026: 0.25, 0.5, 1.25, 2, 2.25 0.10% 0.13% 0.27% 0.81% 1.44%
5th dot 1.75 terminal rate 0.10% 0.13% 0.27% 0.66% 1.20%
Dec 22 start 2Y to tighten to 1.25% 0.10% 0.27% 0.47% 0.74% 0.92%
Japan Stay at ZLB forever 0.10% 0.10% 0.10% 0.10% 0.10%
Source: HSBC, Bloomberg. Note: Red shading indicates higher rates than current levels
6
10 November 2021
Americas
 The flat US long-term forward curve has priced in Fed tightening,

timing may be an issue, but steepening positions seem attractive
 Opportunities in Canada’s front end on likely overshoot, long TIPS
breakevens near upper end of range, and low HY defaults
 Potential for Banxico accelerating the pace of tightening and Chile
Presidential election are items to watch this month
Lawrence Dyer US
HSBC Securities (USA) Inc.
lawrence.j.dyer@us.hsbc.com Neutral
+1 212 525 0924 Maintain range-trading/neutral view to reflect a mixed duration outlook along the yield curve, as
Shrey Singhal, CFA discussed in the global direction section (see pages 4-6). Timing may be difficult, but long-
Fixed Income Strategist
HSBC Securities (USA) Inc. maturity steepening positions seem attractive.
shrey.singhal@us.hsbc.com
+1 212 525 5126 There is little term premium in the 10Y30Y forward, given its tight spread to the 5Y5Y. This
spread has fallen to 17bp (Figure 3), only +12bp above its narrowest level in 2018. This was
when yields were +150bp higher than today, and well above the FOMC’s 3% median long-run
dot at the time. Thus, the curve’s flat slope is priced for a full tightening cycle, long before the
first rate hike, in our view, and we note that the equivalent spot swap curve (Figure 1) is even
flatter than Treasuries.
Flat long-term yield spreads tend to occur at the end of a tightening cycle – when investors are
willing to sacrifice yield to own longer duration bonds – in the expectation that yields will fall
significantly. While we have one of the lowest 2022 yield forecasts in the market, it is difficult for
us to envision a scenario that justifies the current valuation at the front-end of the curve, the
longer-run forward levels, and their flat slope.
Long-end forwards show how
Headlines point to a handful of leveraged steepening positions underperforming recently. In
the curve is already very flat,
contrast to leveraged money, real money seems to have limited risk exposure recently. The
like it was at the end of a
tightening cycle performance of core and core plus bond funds (as defined by Lipper’s fund objectives) versus
their benchmark index informs this observation. We say this noting that past performance is
often not indicative of what comes next.
The managers of the USD1.4trn of bond funds in our sample hold multiples of that amount in
fixed income assets under management, which follows comparable positioning strategies. Core
bond funds have outperformed by an average of +40bp YTD, and have closely tracked their
index’s performance recently. Core plus funds take more risk and have outperformed by an
average of +95bp YTD, with circa -10bp of underperformance recently.
We see some signs that these investors are moving towards steepening views and/or short
duration positioning, based on their return profiles.
7
10 November 2021
Figure 3. Very little term premium in bond sector
4.00
3.50 US 10Y30Y
3.00
2.50
Yield (%)
2.11
2.00 1.94
1.50
Difference between 10Y30Y US 5Y5Y
1.00
and 5Y5Y is minimal
0.50
0.00
2016 2017 2018 2019 2020 2021
Source: HSBC, Bloomberg
TIPS: Range games

Lawrence Dyer
Head of US Rates Strategy Our neutral view continues to signal an expected range trading environment. In our opinion, the
HSBC Securities (USA) Inc. 30-year inflation breakeven spread should trade in a narrow 230-240bp range with the risk
lawrence.j.dyer@us.hsbc.com
+1 212 525 0924 biased to a shift to a lower 220-230bp range. Meanwhile, we expect front-end inflation to have a
Shrey Singhal, CFA wide, volatile range until there are signs that supply chain bottlenecks are clearing.
HSBC Securities (USA) Inc. There has been significant volatility in the market’s near-term inflation expectations. This is seen
in the evolution of the one-year inflation swap level, which spiked from 3.1% to 3.95% in
+1 212 525 5126
October (Figure 4). We expect this volatility to continue. Energy prices, COVID-19 driven
bottlenecks, and the uncertain evolution of the supply of labour and wage costs, are key issues
for the near- and longer-run inflation outlook. In the near term, bottlenecks may create adverse
feedback loops, or the fear of them.
Expect inflation breakeven
Short-maturity inflation swaps and TIPS breakeven spreads seem to have a meaningful
ranges to continue until there
premium priced into them, based on Bloomberg’s consensus forecasts. These have the YoY
are signs bottlenecks are
easing CPI dropping from 5.0% for Q1 2022 to 3.4% in Q2, ending the year at 2.4%. We note that the
majority of the end of 2022 forecasts are within a wide 1.8-3.1% range.
Ultimately, investors are likely to ignore the forecasts, unless there are signs that bottlenecks
are easing. Until then, we would expect the recent 3-4% range for the one-year swap to hold
while the outlook remains uncertain.
Figure 4. Inflation levels implied by swaps near the top of the range
4.00
3.75
3.80
Plenty of inflation is already
built into the price 3.60
3.40
3.20
Yield (%)
3.00
2.80
US 1Y inflation swap
2.60
2.40
2.20
2.00
Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Nov 21
8
10 November 2021
Lawrence Dyer
Canada
lawrence.j.dyer@us.hsbc.com Shift to mildly bullish from neutral
+1 212 525 0924 The aggressive rate hikes priced into the front end of the yield curve mean the balance of risk to
Shrey Singhal, CFA reward now favours lower rates and buying on weakness if it occurs.
The Canadian rate outlook shifted to higher yields after the Bank of Canada’s (BoC) 27 October
+1 212 525 5126 meeting ended its asset purchases and sent a hawkish signal. The two-year yield jumped from
52bp to 92bp currently, while it peaked at 109bp. Ten-year yields were less affected, jumping
from 150bp to 159bp, while peaking at 174bp.
The price action points to significant forced selling by market longs, likely out to earn carry and
BoC hawkish surprise roll in the front end of the yield curve. Meanwhile, the quick reversal from the yield peaks
caused stop out selling suggests that this pressure has likely ended.
Figure 5 shows the OIS forwards are pricing in an aggressive rate hike path. The 1Y and 2Y 1M
forwards are near their 2018 peaks. Also, the 1Y projected pace of hikes is the fastest since 2006.
The market reaction seems aggressive, in our view, given the uncertainty in the global
economic outlook. The BoC’s commentary addressed the start date for rate hikes, and pointed
to a lower equilibrium GDP based on its view of the effects of the pandemic. So, while its 2023
GDP level is ¾ percent lower than in its April report, it assumes that the potential GDP fell even
more over the period. That might prove to be the case, but for now, the reaction to an
unexpected forecast change seems too much, too soon, in our view.
Figure 5. 1Y and 2Y forward one-month OIS priced for an aggressive hiking cycle
3.50
3.00
The yield curve’s implied hike
path is likely too aggressive 2.50 2Y1M
Yield (%)
2.00
1Y1M
1.50
1.00 1M OIS
0.50
0.00
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
9
10 November 2021
Frank Will
USD supras & agencies
Head of SSA & Covered Bond
Research
HSBC Trinkaus & Burkhardt AG Keeping our neutral sector stance
frank.will@hsbc.de
We maintain our neutral sector stance on USD supras and agencies. Yield levels of the sector
+49 211 910 2157
remain highly volatile, being largely driven by the underlying movements of Treasuries.
However, supra and agency spreads over the US government curve continue to be surprisingly
low compared to the peak levels we have seen over the last two years and are at the short end
of the curve often only single-digits.
Strong market differentiation

In terms of issuers, there is a strong market differentiation between major and second-tier
between major and second- issuers observable at the long end of the curve (Figure 6). However, this is not the case with
tier issuers at the long end of shorter maturities where the spread differentials are typically limited to a few basis points, which
the curve increases the setback risks for investors, in our view.
Most European supra and agency issuers have effectively reached their funding targets for
Likely less issuance from
2021. We therefore expect less USD supply from these issuers for the remainder of the year.
European issuers until the
end of the year However, several global issuers such as IBRD and IFC have a different fiscal year and are
therefore at a different stage in their funding plan compared to the European issuers. Moreover,
we would not rule out that some European issuers might start prefunding next year’s funding
volumes in order to avoid a potentially crowded primary market in the first quarter.
Figure 6: Asset swap spread levels of selected SSA issuers
50
40
ASW spreads (bp)
30
20
10 BNG RENTEN NRWBK CADES

NEDWBK KFW EIB
0
1 2 3 4 5 6 7 8 9 10 11
Maturity (years)
Source: HSBC, Bloomberg (as of 8 November 2021)
10
10 November 2021
Song Jin Lee, CFA

USD credit
European & US Credit Strategist
HSBC Bank plc
songjin.lee@hsbc.com Moving sideways
+44 20 7991 5259 We retain our neutral stance in USD IG and mildly bullish stance in USD HY. The Fed’s taper
Jonathan White announcement came and went, and spreads barely budged in response. As we highlighted in
Head of European Credit
Research Beyond taper, tapering was not a major driver of credit spreads in 2013, and we do not expect it
HSBC Bank plc
to be one in 2021. All eyes are now on the Fed’s assessment of inflation dynamics and how that
jonathan.white@hsbcib.com
+44 20 7991 5195 would affect the timing of the first rate hike. And while that may have injected some volatility into
the Treasuries market, credit investors should take comfort in the fact that the Fed is in a
position to start raising rates only if the economy is in good health. The latter is a far more
important driver of spreads than the first few initial rate hikes, so we expect spreads to continue
IG spreads to continue trading sideways in the near term.
moving sideways
Positive momentum in USD HY energy
USD HY spreads have moved marginally wider since mid-September and although they have
Mildly bullish in USD HY, partly
since rolled over in early October, they have yet to fully retrace the move wider. We think there
due to positive developments
in the energy sector is further room for spreads to tighten here. The 12m trailing default rate is now below 1%, close
to its lowest level since at least 2014 (Figure 7). We expect default rates to remain close to their
current levels for the next two quarters. Moreover, the high energy prices of recent months
provide a significant boost to the cash flows of oil & gas companies, a major constituent of the
USD HY index. Unlike previous periods of high energy prices, company management have
been very disciplined thus far when it comes to recycling cash into future growth projects. The
combination of modest capex spending and robust cash-flow generation is credit positive and
could allow spreads to tighten beyond their historical tights.
Figure 7. USD HY default rate is close to its lowest level since 2014
6%
5%
USD HY
4% default rate
Default rate
3%
Median
2%
1%
0%
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source: HSBC calculations, Bloomberg, Markit
11
10 November 2021
Mario Robles
Latin America
Head of LatAm Rates Strategy
mario.robles@us.hsbc.com Mexico: Neutral
+1 212 525 4119 Mexico’s central bank has been reacting slowly to a scenario of quickly accelerating prices in
Melissa McCallum 2021 but we note that 2022 inflation expectations are still below 4.0%. We think that market
Strategist
HSBC Bank plc dynamics in the next weeks should rest on whether the central bank will validate the market’s
melissa.mccallum@hsbc.com view of tighter monetary policy needed in order to keep 2022 inflation dynamics in check. Here
+44 20 7991 5919
we see two possible scenarios: one where the central bank validates the tightening and delivers
faster and possibly more tightening, gaining credibility quickly, and another where the central
bank decides to keep the 25bp pace per meeting amid clearly adverse inflation dynamics.
The outcomes from a yield curve perspective could be different. In the first scenario (tightening
acceleration) the curve should flatten, while in the less hawkish scenario (keeping the 25bp
pace) the curve could begin to steepen as inflation expectations start to adjust for the possibility
that inflation imbalances continue in 2022. Market price action is converging towards the first
scenario (tightening acceleration).
In our view, if inflationary dynamics are not tamed pre-emptively in the coming months, the next
There is a risk that Mexico governor of the central bank (starting 1 January) may have to deliver strong doses of tightening
will have to tighten policy to get inflation expectations in check.
aggressively
For long-dated yields, the view is more nuanced. While US tapering has been priced-in by now,
less accommodative monetary policy could still set off hiccups in local markets, particularly for
duration plays. Keep in mind that the close capital flows integration between Mexico and the US
means local assets are highly sensitive to tighter monetary conditions north of the border. In
addition, the government’s desire to gain more control of the energy sector (electricity and oil)
may be seen as a headwind to attract capital flows into local markets.
Table 3. LatAm Fixed Income outlook –

Mexico Brazil Chile Colombia
Local rates outlook Neutral Mildly bearish Mildly bearish Neutral

Yield curve shape Flatter Flatter Flatter Flatter
Banxico’s possible
Fiscal impulse, political Presidential election Central banks’ pace of
Main item to watch tightening
noise on 19 November monetary tightening
acceleration
Fiscal impulse outside Inflation path & BCCh Mounting inflationary
Main risk Inflation outlook
of spending cap pressure
Source: HSBC. Risks and items to
watch in the next 2-3 months.
 down ------ yields ------- up 
12
10 November 2021
EMEA
 Bund and gilt valuations look fairer after the dovish BoE surprise:
yields can edge lower in the Euro area but we turn neutral in the UK
 We have turned mildly bearish on both the Euro non-core and Euro
inflation where risk of ECB miscommunication could inject volatility
 In credit, we continue to see best value in HY: periods of spread
widening into year-end should be seen as an opportunity
Chris Attfield Eurozone core

European Rates Strategist
HSBC Bank plc Move from bullish to mildly bullish
christopher.attfield@hsbcib.com
+44 20 7991 2133 We move to mildly bullish on core duration this month: valuations have moderated as the strong
bull steepening in the UK bled through into the Eurozone. Bund yields seem to have found
some sort of a ceiling at around -10 to -20bp, at least for now. Our end-year forecast of -30bp
remains unchanged, as does the end-2022 forecast of -50bp.
The Bund market was dominated by other markets last month – a pattern that could continue
through November. October saw strong bear-flattening as Australia’s YCC peg slipped,
focussed on the five-year point. Valuations became stretched until the surprise Bank of England
move caused the curve to bull steepen. Overall, the curve has bull flattened as the long end
steadily outperformed. By contrast, November’s ECB meeting was a damp squib, with push-
back against higher rates that was neither forceful, nor convincing (see page 10 of Global rates
ideas: Distortion, 29 October 2021).
The Bund curve has now backed off from the excessively cheap levels of mid-October. We think
Bund yields may have found a
yields have room to fall further, given that the first ECB hike is still priced for September 2022, which
ceiling, but we are not looking
for a rapid fall in rates we think is unrealistic. But with headline inflation expected to peak in November (Figure 8), we are
not looking for a rapid fall in rates – particularly with divisions in the ECB’s Governing Council
hampering any efforts to counter Bund weakness.
Figure 8. We expect yields to fall over time as headline inflation abates
4.5 0.00
4.0
Headline inflation HSBC Headline inflation forecast -0.10
3.5
3.0 -0.20
Bund yield (%)
HICP (YoY %)
2.5
-0.30
2.0
1.5 -0.40
HSBC Bund yield forecast
1.0 10Y Bund (RHS) -0.50
0.5 yield (RHS)
0.0 -0.60
Jan 21 Apr 21 Jul 21 Oct 21 Feb 22 May 22 Aug 22
Source: Bloomberg, Eurostat, HSBC
13
10 November 2021
For core rates the key question is what the new ECB inflation forecasts will look like on 16
December. There will be a 2024 forecast for the first time: that, and the revised 2023 level, will give
fresh insight into how close the ECB is to hiking, as those are the points referenced in its forward
guidance. Coming late in the year, the impact of any surprise could be magnified by low liquidity.
Chris Attfield
European Rates Strategist
Eurozone non-core
HSBC Bank plc
christopher.attfield@hsbcib.com Move from neutral to mildly bearish
+44 20 7991 2133
Our move to mildly bearish this month is due to the chance of volatility in the run-up to
December, coupled with BTP spreads that are still relatively tight. We remain of the opinion that
the end of the Pandemic Emergency Purchase Programme (PEPP) – all but confirmed at the
last ECB press conference for March 2022 – should not be a major disruption for the BTP
market, for the reasons set out in PEPPed up (2 June 2021). Note that we expect PEPP to still
be buying in Q1 2022 (which is a time of traditionally heavy supply) and, given the lower Italian
budget deficit, we expect ECB purchases in 2022 to largely offset the net supply of BTPs (see
Weekly Analysts’ Meeting: Walking the tightrope, 2 November 2021).
However, nervousness about the ECB’s acquiescence in the face of market hike pricing clearly
BTP spreads may remain
volatile while market rate hike
broke through into non-core spreads (Figure 9). The weakness does not seem to be extending
expectations continue at present, but there were worrying signs of short-end volatility and bear flattening, which we
think makes the risk/reward on BTP carry trades look unattractive for now.
The ECB is in the unprecedented situation of seemingly keeping the door open to policy
tightening whilst also wishing to prevent excessive BTP spread widening. Investors should recall
that the BTP market has never had to cope with rate hikes since the sovereign debt crisis. Many
of the tools that the ECB has used in the past to close spreads – notably PEPP – were also
tools of monetary easing. Whilst market expectations of rate rises are allowed to continue
unchecked, BTP spreads may remain volatile.
Figure 9. BTP spread volatility around October's ECB
140
135 ECB Press Conference
28 October
130
Spread (bp)
125
120
BTPS 12/31 - DBR 08/31
115
110
105
100
Mon Tue Wed Thu Fri Mon Tue Wed Thu Fri Mon Tue Wed Thu Fri Mon Tue Wed Thu Fri Mon
11 12 13 14 15 18 19 20 21 22 25 26 27 28 29 01 02 03 04 05 08
Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Nov Nov Nov Nov Nov Nov
14
10 November 2021
Daniela Russell
Euro breakevens
Head of UK Rates Strategy
HSBC Bank plc
daniela.russell@hsbcib.com Turn mildly bearish: Reaching the peak
+44 20 7991 1352 We think the tide could be turning for Euro inflation assets and so turn mildly bearish. Previously
we were neutral overall with a selectively bullish stance on the front-end. This provided effective
diversification for some of our bullish nominal rates trades but we recently reverted to neutral
(see Global Rates Ideas: Distortion, 29 October 2021). With headline inflation soon about to
peak and the ECB facing another stiff test of its communicational capabilities in December, the
headwinds appear to be building for inflation breakevens.
QE has played a crucial role The ECB outlook is key for the Euro inflation market. Not only has ECB dovishness been bullish
in the inflation market for real yields but QE has also played a crucial role in supporting credit and peripheral spread-
type products, which includes iota spreads. We have recently seen a significant widening of iota
spreads, with core and peripheral cash breakevens both underperforming versus inflation
swaps (Figure 10). There has been some retracement over the last couple of days, but we think
relatively wide levels may persist in the near-term.
Figure 10. Iota spreads have widened sharply*
28 42
40
24 Bonosei30 (LHS)
38
20 36
OATei29 (LHS) 34
Prospect of less ECB support
16 32
weighs heavily
bp
bp
12 30
28
8 26
DBRi30 (LHS) 24
4
BTPei30 (RHS) 22
0 20
Oct 20 Jan 21 Apr 21 Jul 21 Oct 21
Source: HSBC, Bloomberg * relative z-spread between linker and nominal
On the one hand, cheap valuations and the seasonal slowdown in supply should be positive for
cash versus swaps. However, long positioning, poor liquidity and year-end balance sheet
constraints may limit demand. The most important factor in the coming weeks will be the
December ECB meeting when the ECB faces the challenge of communicating about the future
of the PEPP programme. We expect it to end in March 2022, at which time we think the size of
APP purchases will double to EUR40bn per month. Although this increase might offer some
relief, there is risk of miscommunication of a broader message of continued accommodation
which could weigh heavily. The prospect of less ECB support, perceptions of a more hawkish
tone and/or a significant upward revision to ECB HICP projections (implying earlier tightening)
could yet prolong the spread widening pressure.
15
10 November 2021
Daniela Russell
UK
HSBC Bank plc
daniela.russell@hsbcib.com Turn neutral: Consolidation due after post-BoE re-pricing
+44 20 7991 1352 Markets were caught off-guard by the BoE’s decision to leave rates on hold at the November
meeting, but it shows it has learnt the lessons of the past about the dangers of premature
tightening when rates are close to the lower bound. There has been a sharp re-pricing towards
fairer levels in response (Figure 11) and we now think some consolidation is due (see Global
Rates Ideas: Forwards high, spreads wide, 5 November 2021). With 10-year yields slightly
below our year-end target of 1% (at 0.85%) and the near-term outlook still uncertain, we turn
neutral on duration (from mildly bullish previously). We prefer to wait for better opportunities to
position for a more sustained shift towards a bullish narrative.
Figure 11. Rate hikes have been priced back – and out
1.6
1.4
Very hawkish Hawkish
1.2
Near-term consolidation
1.0
likely, but a further fall in
0.8
%
yields is likely over the

medium-term
0.6 Current market pricing
0.4
Dovish
0.2
0.0
Spo t Dec 21 Feb 22 Mar 22 May 22 Jun 22 Aug 22 Sep 22 Nov 22 Dec 22 Feb 2 3
The BoE appears to have a ‘window of opportunity’ within which to hike. In the near-term, the
Front-end yields likely to stay
volatile in the near-term
risks to the monetary policy outlook are two-sided. Markets will be very sensitive to the incoming
data over the coming weeks and will be continually re-assessing the likelihood of a hike at the
next meeting. High headline inflation is likely to keep fears of second round effects alive in the
next couple of months, thereby prolonging front-end volatility while longer-dated yields stay
relatively more range bound.
BoE may miss the boat and Regardless of the near-term path of policy rates, a key message from the MPC minutes was that
not hike at all – if rate rises do come – they won’t hike far. The BoE pushed back on market pricing of 1% of
hikes over the next 12 months. As we argued in Fixed Income Asset Allocation: Mark-to-market,
(13 October 2021), we struggle to see them sustaining a move above the previous cycle peak of
0.75%. In fact, we also think there is a real possibility that the BoE does not hike at all. If the BoE
delays again in December and/or February, the timing would move us closer towards the spring
when more rises in utility prices and tax increases will act as a further significant drag on
spending. We therefore retain our bullish longer-run stance and wait for better opportunities to
position for a sustained fall in yields.
16
10 November 2021
Daniela Russell
UK breakevens
HSBC Bank plc
daniela.russell@hsbcib.com Stay neutral: Real yields hit new lows ahead of the syndication
+44 20 7991 1352 Following the surprise BoE decision to leave rates on hold at 0.10% at its November meeting, real
yields have fallen to new record lows. Although the rally has been led by nominal rates, linkers have
kept up fairly well. Attention in the inflation market is now turning towards the upcoming syndication
later this month when the DMO is due to extend the curve with a new March 2073 maturity.
We had been advocating an ultra-long real rate steepening bias but we recently turned neutral
(see Global Rates Ideas: Forwards high, spreads wide, 5 November 2021). The 50-year sector
now looks more fairly valued on the curve after the underperformance on both real yield and
breakeven (Figure 12).
Figure 12. Ultra-long end valuations look fairer following the recent underperformance
-6 -4
-10 30-50Y BE spread (LHS)

0
-14
-18 4
Expectations of curve
bp
bp
extension has weighed on -22 8
the 50Y point
-26 30-50Y real rate spread (RHS)
12
-30
-34 16
Nov 20 Dec 20 Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21
Ahead of the supply, the overall outlook for demand remains very strong. Global risk assets
continue to post new highs, which suggests a healthy state for pension funding ratios and any
back-ups in real yields are likely to be quickly met by buying. Furthermore, year-end is typically
a very active period for pension scheme hedging programmes and we see no reason for this
year to be any different. The buy-out pipeline remains strong and the Pension Schemes Act
Outlook for pension demand also underpins strong LDI demand. Finally, while the proportion of linker supply was somewhat
remains very strong preserved at the gilt Remit update in October, total supply of inflation in 2021/22 has been
reduced by GBP2.1bn and there are just two linker auctions in Q1 2022. Therefore, the
syndication will be seen as an important opportunity to de-risk before fiscal year-end.
These supportive factors mean that any further cheapening may be relatively limited and short-
lived. However, we do expect to see a bit more of a concession in the coming weeks. A
GBP3.5-4.0bn syndication of a new Mar-2073 would deliver c.GBP20mm/bp PV01, which would
mean a significant amount of duration for the market to swallow. Therefore, with real rates at
record lows, valuations may deter some buying in the near term and also enable beta-adjusted
breakevens to temporarily soften further from the highs.
17
10 November 2021
Frank Will
EUR supras and agencies
Research
HSBC Trinkaus & Burkhardt AG Stay neutral: Risks balanced
frank.will@hsbc.de
We keep our neutral stance on the SSA sector after lowering it from mildly bullish in October
+49 211 910 2157
(Fixed Income Asset Allocation, 12 October 2021). Since the end of July, spreads vs swaps
have tightened again and have now reached levels where we see far more limited potential for a
further outperformance against swaps. On the other hand, many supranational and agency
issuers have underperformed Bunds over the last few months and the current spread levels
Balancing the tight swap appear relatively wide historically. Balancing the tightness of swap spreads with the wide level
spreads with the wide Bund of Bund spreads, we prefer a neutral sector stance.
spreads, we prefer a neutral
sector stance In terms of refinancing requirements, most European supra and agency issuers have essentially
reached their funding goals for the year. At the end of October, the EU (which is the largest S&A
Most issuers have essentially issuer) announced a reduction of its Next Generation EU (NGEU) funding target for 2021 from
reached their funding targets to EUR80bn, following its updated assessment of payment needs. This means that the
for the year
European Commission has already reached its full-year target and will not conduct any further
EU bond issuance this year.
However, the EU-Bill auctions will continue as previously announced, according to the
Commission. Year-to-date, the issuer has already raised EUR20bn in EU-Bill format. The
lowering of its funding target also means that the Commission will miss its own 30% green
issuance target as year-to-date green supply volumes of EUR12bn represent less than 17% of
total NGEU issuance in 2021. The European Commission plans to publish its next funding plan
– which will include the funding target for the first half of 2022 – in December this year. Given
that most S&A issuers have completed funding for the year, we expect primary market activity to
continue to slow until year-end. That said, some issuers might use the quieter market to start
prefunding next year’s funding volumes.
Figure 13: Spreads of S&A issuers including the EU have widened over Bunds
60
2-4yr 4-6yr 6-9yr
50
Spreads over Bunds (bp)
9-11yr 11-20yr 20-30yr

40
30
20
10
0
Source: HSBC, Bloomberg (spread performance against Bunds of EU bonds since the beginning of the year)
18
10 November 2021
Frank Will
Covered bonds
Research
HSBC Trinkaus & Burkhardt AG We raise our sector stance to neutral, from mildly bearish
frank.will@hsbc.de
We are changing our sector stance to neutral from mildly bearish. Covered bond spreads
+49 211 910 2157
against swaps have been relatively stable over the last few months despite the strong supply
volumes in September and October. However, covered bonds were not able to decouple from
the rise in yields and spreads over Bunds have widened over the last few months (Figure 14).
This move has been exaggerated in our view and, from a risk perspective, we regard
benchmark spreads of 30-40bp between German Pfandbriefe and Bunds as fair levels for
maturities of five years and longer. In France, the fair levels are historically more in the 20-30bp
Covered bond spreads over
area over OATs as the spread between French and German covered bonds is typically smaller
Bunds have widened over the
last few months
than that between OATs and Bunds, and also due to the fact that the OAT curve is usually
much steeper than the Bund curve.
We expect primary market activity to slow towards the end of the year after the recent jump in
supply. Gross issuance in September and October amounted to EUR35bn, which represents
40% of year-to-date issuance. While new issue volumes will likely fall, we expect gross covered
bond purchases by the ECB to remain relatively high until year-end as the Eurosystem will face
CBPP3 redemptions of more than EUR4bn in November alone. Moreover, next year’s CBPP3
redemptions will likely hit a new all-time high of EUR42bn (Covered Bond Insight, 5 November
2021) with the monthly CBPP3 redemptions peaking in January at EUR9.8bn. This points to
high gross CBPP3 purchases in 2022
Our neutral stance on covered bonds balances the wide spread levels against Bunds with the
Our neutral stance balances
the wide spread levels over compressed state of the market with spread differentials between the various national covered
Bunds with the compressed bond market segments often in single-digits. The low spread differentials between core and
state of the market non-core countries mean that investors, in our view, are not being adequately compensated for
the higher beta of non-core covered bonds.
Figure 14. Covered bond spreads over Bunds have significantly risen since mid-May 2021
55
1-3yrs 3-5yrs
50
Spreads over Bunds (bp)
5-7yrs 7-10yrs
45
40
35
30
25
20
Source: HSBC, IHS Markit
19
10 November 2021
Song Jin Lee, CFA

European credit
HSBC Bank plc
songjin.lee@hsbc.com Keep EUR IG at neutral, HY at mildly bullish
+44 20 7991 5259 We remain neutral in EUR IG and mildly bullish in EUR HY. A lot of attention will be showered
Jonathan White on the ECB’s final meeting of the year on 16 December, when Christine Lagarde promised she
Research would outline the bank’s post COVID-19 QE plans. Much of this will likely centre on the end of
HSBC Bank plc
PEPP and any adjustments in APP purchases that may be needed to avoid a cliff edge in the
+44 20 7991 5195 purchase rate in Q2 2022. In both cases, the Governing Council’s decision is more likely to
affect the rates market than corporate bonds, as reflected by the recent widening of BTP-Bund
spreads while EUR IG spreads continued to trade sideways. We think this is broadly right.
CSPP purchases should continue at around EUR4-6bn a month in 2022, which will provide
ECB meeting in December support to the EUR credit market and dampen spread volatility there.
should be a non-event for
credit Instead, we think credit investors should turn their focus towards the EUR HY market, where spreads
continue to trade near the upper end of their six-month range. As liquidity declines into year-end,
spreads may overshoot to the upside. But that would likely fade in due course. In our view, investors
would be better off riding through any near term volatility with an eye on January 2022.
With credit fundamentals on an improving trajectory and default risk still low, we think there is
There is better value in HY
than in IG
better value in HY versus IG. In light of the current volatility in the rates market, we think
investors are better compensated for taking credit risk in HY than spread duration risk in IG.
After accounting for default and liquidity risk, investors are left with 70bp of excess base spread
in HY (Figure 15). The same cannot be said for EUR IG, where the current ASW does not cover
default, downgrade and liquidity risks.
Figure 15. HY offers 100bp of excess carry after liquidity and default risks
1350
Base spread = 98bp
1150
Asset swap spread (bp)
950
750
550
350
150
-50
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Base spread Default risk Liquidity premium
Source: HSBC calculations, Markit
20
10 November 2021
Song Jin Lee, CFA

GBP Credit
HSBC Bank plc
songjin.lee@hsbc.com Value in 30-year corps vs five-year
+44 20 7991 5259 Although the Bank of England did not hike rates at its latest meeting, it still stands out as
Jonathan White relatively hawkish compared to the Fed and the ECB. We had expected the faster rate of policy
Research normalisation to put pressure on long-dated GBP credit (see Chopping tails: Fixed Income
HSBC Bank plc
Asset Allocation, 7 July 2021), and 30-year BBB spreads have indeed widened by around 20bp
+44 20 7991 5195 in the past two months. Partly as a result of this, the 5-30-year spread curve is near its widest
point in the past five years (Figure 16).
Much of the BoE’s rate hikes, including the potential risk of a policy mistake, are priced into the
long-end of GBP credit, in our view. Although at 135bp the 30-year spread is at its year-to-date
Value in 30-year BBBs, but highs, it is also near the middle of its medium-term range of 110-160bp. Thus the risk reward
keep overall risk close to home does not favour an outright spread duration extension strategy. Instead, we moderate our risk
exposure by pairing an underweight in the five-year segment with an overweight in 30-year
BBBs. This way, we can keep overall risk close to benchmark which is in line with our neutral
stance in GBP IG.
Figure 16. The 5-30Y GBP BBB spread curve is steep versus history
100
90
5y-30y BBB spred curve (bp)
80
70
60 Current level
50
40
30
20
10
0
2016 2017 2018 2019 2020 2021
Source: HSBC calculations, Bloomberg
21
10 November 2021
Radoslaw Bodys
CEEMEA rates
Head of CEEMEA Rates Strategy
HSBC Bank plc
radoslaw.bodys@hsbc.com
Remain mildly bearish PLN rates
+44 20 7991 5882 The start of monetary policy tightening by the National Bank of Poland (NBP) in October was
arguably one of the largest monetary policy surprises in recent years in CEEMEA. We have
been on the wrong side of the market altogether, expecting the NBP to start tightening only next
year, and later than implied by FRAs. It is likely that the drivers of the NBP’s U-turn go beyond
pure macro dynamics.
There are two possible explanations behind Governor Glapinski’s sudden change of position, in
our view. The first is that he might have lost control of the MPC, i.e., the majority for a hike has
formed on the MPC and he would have been out-voted if he had not changed his position. The
second is that the government might have concluded that the cost of high inflation would start to
outweigh the benefits of low interest rates for the public (who don’t differentiate between
monetary and non-monetary inflation). Being close to the ruling PiS party leadership, Governor
Glapinski may have therefore decided to take a broader policy perspective.
If the above reasoning is correct, it implies that the position of Governor Glapinski may no
longer be the driving force behind monetary policy decisions he used to be. Consequently, we
think rather than focusing on his policy guidance, the markets should look more broadly at
A more hawkish stance may be comments from other MPC members as well as those from the senior government and PiS
maintained in the near-term
representatives. Also, being seen as responsible for a spike in inflation by both the public and
the government (see for example Bloomberg 6 October), Mr. Glapinski (whose term expires in
mid-2022 and who is eager to be re-appointed as the NBP governor) may want to
overcompensate with a more hawkish stance in the near-term.
Table 4. CEEMEA Fixed Income outlook

Czech South
Hungary Poland Russia Turkey Romania Israel
Republic Africa
Local rates Mildly Mildly Mildly Mildly

Neutral Neutral Bullish Bearish
outlook bearish bullish bullish bullish
Yield curve
Flatter Flatter Neutral Neutral Steeper Flatter Flatter Neutral
slope
Source: HSBC.
 down ------ yields ------- up 
22
10 November 2021
Asia-Pacific
 Japan remains insulated from the volatility in other rates markets,

and even offers good diversification
 The Australian front-end may have become de-anchored but the
long end forwards appear to have met resistance
 Asian credit appears to be suffering from aftershocks and year-end
target levels are revised
Andre de Silva, CFA Japan

Head of Global EM Rates
Research
The Hongkong and Shanghai Neutral
andre.de.silva@hsbc.com.hk
Once again JGBs have been absent from the volatility surrounding re-pricing of global policy
+852 2822 2217 normalisation, in particular led by Australia, New Zealand and Canada rather than the US (Figure
17). There is underlying producer price pressure in Japan (i.e. +6.3%yoy) in the same vein as
global peers face supply bottlenecks but there is little evidence of pass-through to consumer
inflation in Japan (ie +0.2%yoy). This is likely to remain the case, especially with structurally low
wages in part due to the rising share of lower-waged non-regular workers reducing workers’
bargaining power (eg with a rapidly ageing population, the return of retirees as part-time workers
at a lower wage). So unlike other DM peers, which have seen some sharp re-pricing of policy
normalisation, implied policy rates in Japan, through the next three years, have hardly budged and
remain at the same level over the next three months (-0.03bp). Given these attributes and the
prospect that the BoJ does indeed keep to its very accommodative policy stance, JGB yields are
likely to remain pinned down, offering both insulation and diversification from global rates volatility.
Given BoJ’s accommodative In contrast to the Reserve Bank of Australia (see page 24), the market is unlikely to test the
policy stance, we expect JGB resolve of the BoJ regarding its own and more established Yield Curve Control.
yields to remain pinned down
Foreign appetite for JGBs has also increased progressively through this year and totalled
USD115bn (until August 2021) vs only USD4bn in the whole of 2020. US-based investors, for
Stronger foreign demand for
JGBs compared to 2020
example, can buy two-year JGBs and pick up 32bp on a cross-currency asset-swap basis vs
Secured Overnight Financing Rate (SOFR). On a Sharpe ratio basis rather than just yields,
foreign investors are also likely to continue to be drawn into the JGB market as a diversification
from the volatility in global policy rates.
23
10 November 2021
Figure 17. JGB yields remain resilient against the backdrop of global policy normalisation
0 65
2-week* net change in yields (bp)

1-week net change in yields (bp)
-5
-10 45
-15
-20 25
-25
-30 5
-35
-40 -15
-45
-50 -35
US Canada UK Germany Japan Australia New Zealand
2Y 5Y 10Y 2Y* 5Y* 10Y*
Source: HSBC, Bloomberg. Note: 1-week change: 29 Oct – 5 Nov 2021, *2-week change: 22 Oct – 5 Nov 2021
Andre de Silva, CFA

Australia
Head of Global EM Rates
Research
The Hongkong and Shanghai Neutral
Banking Corporation Limited Australia rates have been swept up with the global policy normalisation, with the Reserve Bank
andre.de.silva@hsbc.com.hk
+852 2822 2217 of Australia (RBA) essentially compelled by the market to officially abandon Yield Curve Control
(YCC) (Figure 18). Despite a dovish push-back by the RBA Governor Philip Lowe, who
signalled that markets were too aggressive in pricing hikes for next year, implied policy rates still
factor in around 65bp rate hikes in 12 months’ time, albeit this is less than the circa 90bp
implied at the end of October for a year ahead. The Bank of England keeping policy rates on
65bp of rate hike is still
priced in despite a dovish hold, contrary to market expectations (page 16), at its last policy meeting has also helped to
push back by the RBA ease the extent of policy tightening in Australia. Once again this demonstrates the cross
sensitivities in implied policy normalisation in particular amongst the group that includes the
RBA, Reserve Bank of New Zealand, BoE and Bank of Canada.
It is difficult to therefore extract carry out of the front-end of the Australia rates curve as this is
not only subject to positioning for a realistic path of policy rates but also rapid repricing of the
other central banks in the pack. RBNZ could be next to infuse short-rate volatility with a policy
meeting on 24 November.
Figure 18. RBA throws in the towel
1.40
19 Mar: 3 Nov: 2 Nov: RBA scrapped YCC
1.20 YCC at around 25bp YCC at around 10bp
28 Oct:
1.00 RBA stopped
AUD 1.78bn AUD 5bn AUD 2.55bn 6 Jul: defending YCC
Yield (%)
0.80 extend YCC at

AUD 4bn around 10bp
0.60 AUD 1.15bn AUD 3.3bn AUD 1bn
0.40
0.20
0.00
Jan 20 Apr 20 Jul 20 Oct 20 Jan 21 Apr 21 Jul 21 Oct 21
3Y ACGB April 2024 3Y ACGB November 2024

24
10 November 2021
In contrast there is a greater case to be made at the long-end of the Australian rates curve and
as mentioned previously, long-dated Australia Commonwealth Government Bonds (ACGB) and
ACGBs in the long-end are AUD forward yields/swaps are beginning to enter ‘cheap’ valuation territory, with 5Y5Y forward
entering cheap long-term yields approaching a “peak rate”, based on where the last cycle got to (see page 23, Fixed
valuation territory Income Asset Allocation: Mark-to-market, 13 October 2021).
Indonesia
Pin Ru Tan
Asia-Pacific Rates Strategist
The Hongkong and Shanghai Mildly bullish
Banking Corporation Limited,
Singapore Branch We expect IndoGBs to outperform other EM high-yield peers on the country’s continued push for
pin.ru.tan@hsbc.com.sg
reforms and strong fiscal funding progress. Indonesia has cancelled the remaining bond auctions
+65 6658 8782
for 2021, after having raised enough cash to support a fiscal deficit of 4.6% of GDP. Yet, judging
from the pace of fiscal expansion in the first three quarters of 2021, the full-year deficit is more
likely to come in at around 4% of GDP. This suggests that Indonesia could enter 2022 with a high
cash balance, which allows for a more moderate pace of bond issuance to start the new year.
The country also passed a tax reform bill in October to increase its value added tax rate and
introduce new green taxes. We estimate this will boost the country’s fiscal revenue by 1% of GDP
in 2022, and could reduce net funding needs from IDR880trn in 2021 to IDR787trn in 2022. This
IndoGBs stand out due to the fiscal reform also increases the credibility of the country’s fiscal consolidation pledge, to bring the
government’s continued fiscal deficit back within 3% of GDP in 2023, which is positive for bonds. It is commendable that
push for reforms Indonesia is one of few countries globally that pushed forth with reforms during the pandemic.
Besides the fiscal reform, labour market reform was passed in 2020, which should help to increase
Indonesia’s attractiveness as a foreign direct investment destination. This makes the country less
reliant on portfolio flows to finance its current account deficit.
From a real yield perspective, Indonesia continues to stand tall among EM peers (Figure 19). The
efficient monitoring of food prices over the last five years has successfully lowered the average
monthly inflation from 5.4% in the first half of the past decade to 2.7% in the last five years.
Figure 19. Real yields across EM
8
6
4
10yr real yield (%)
2
0
-2
-4
-6
ZAR IDR COP CNY INR BRL MXN MYR RUB PEN THB TRY RON HUF PHP PLN
Current 12m ago
25
10 November 2021
Dilip Shahani
Asia credit
Head of Global Research, Asia
Pacific
The Hongkong and Shanghai Aftershocks undermining sentiment
dilipshahani@hsbc.com.hk
China property high-yield bond yields are now at a decade high as aftershocks from
+852 2822 4520 Evergrande, such as ratings downgrades and the default by Fantasia, ripple through the market.
Given rising investor concerns over refinancing and limited visibility on the timing of any
potential policy support, we revise our AHBI-Corp year-end spread target from 670bp to
1,000bp (978bp end of October) to reflect the current difficult conditions. Despite this, we
believe the longer-term outlook remains positive as the stronger developers will prevail,
improving industry credit metrics and standards, and keep our mildly bullish conviction.
A broader policy loosening We think rebuilding shaky investor confidence will require the relaxation and clarification of
may happen soon to calm existing regulatory guidelines, coupled with slower moves on emission policies. We think the
market volatility
broader policy shift could come soon – perhaps as early as the sixth plenum, an important
political meeting taking place this week (8-11 November). The rationale is that the assessment
of previous political and social achievements, which is usually top of the agenda at this plenum,
could also include the need to ensure small enterprise access to credit, labour market stability
and supporting incomes.
Conversely, the Asian high-grade credit sector has witnessed a better performance as investors
Asia IG credits are
reallocated funds to quality names and issuers with strong implicit government support. The
performing better on demand
and limited supply
primary market being open for high-quality Chinese issuers highlights that credit differentiation
has been working properly. Our theme that the supply of USD bonds issued by China
corporates would diminish has also played out, as shown in Figure 20 (see The View – August
2019, 8 August 2019). These considerations show there is no compelling evidence of contagion
risk to the broader marketplace. As a consequence, we still expect the ADBI and ADBI-IG
spreads to tighten by 14bp and 9bp respectively by end year to 145bp and 120bp, compared to
180bps and 150bps at the start of 2021.
Figure 20. China’s corporate USD bond net issuance peaked in 2017
200,000
Asia USD bond net issuance Mainland China
180,000
160,000 Non-mainland China
140,000
120,000
USDm
100,000
80,000
60,000
40,000
20,000
0
2016 2017 2018 2019 2020 9M20 9M21
Source: Bloomberg, HSBC
26
10 November 2021
Green bonds
Dominic Kini
Could sovereigns issue sustainability-linked bonds with transition targets?
Credit and Green Bond Strategist Unlike green bonds, sustainability-linked bonds (SLBs) do not finance projects. Instead, the
HSBC Bank plc
dominic.kini@hsbcib.com coupon or principal steps up if the issuer fails to meet pre-agreed environmental targets. Green
+44 20 7991 5599 bonds suffer from challenges: will the projects be impactful, additional and successful? And
what else is the issuer doing? We think a benefit of SLBs is their focus on outputs (are you
achieving your environmental goals?) rather than inputs (what are you building?). And we think
ESG investors should care about outputs. And so SLBs have seen strong growth in 2021
amongst corporate issuers, particularly in hard to abate sectors or those without obvious capex
SLBs focus on outputs not (Figure 21). But so far no sovereigns have issued SLBs. Could that change?
inputs
Figure 21. Just corporates for now: distribution of SLBs in iBoxx EUR Corporates
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
SLB Green Social Sustainability

Source: HSBC calculations, Markit, Dealogic, Bloomberg as of 5 Nov 21
The idea is gaining traction (Fixed Income ESG Q&A: Answering key investor questions from
Chile evaluating SLBs
Asia, 2 November 2021). Chile is evaluating issuing an SLB in 2022 (Environmental Finance,
18 October 2021), having previously issued green, social and sustainability bonds. One reason
cited by the head of the public debt office is that the pool of projects eligible for green bonds is
limited. And many countries have established targets for reducing greenhouse gas emissions by
a certain percentage by 2030, which could make suitable targets for an SLB.
But we think sovereign SLBs face two challenges. First, debt management offices are strongly
Two challenges: cost and
liquidity focused, we think, on minimising funding costs and may not like the idea of a coupon step-up or
debt which could become more expensive to pay in the future dependent on policy. A coupon
which steps down if climate targets are met might be seen as more acceptable.
And second, debt management offices want their sovereign debt to be liquid. We think many
sovereign investors might not be able to buy bonds with step-ups, reducing the liquidity of such
bonds. One possible solution would be to allow the step-up to be stripped from the bond and
traded separately.
27
10 November 2021
Currencies
 The November FOMC saw the Fed take another big step towards
tightening policy…
 …with it formally confirming a USD15bn taper, implying net bond
purchases could end in mid-June 2022
 Whilst the taper had little immediate impact, it should support a
gradual strengthening of the USD as policy divergences widen further
Paul Mackel See Currency Outlook: The final stretch (15 October 2021)
Global Head of FX Research
The Hongkong and Shanghai The USD traded in a choppy manner over the last month, as volatility in front-end rates was a
paulmackel@hsbc.com.hk
key driver of FX. The significant moves higher in rate hike expectations for many currencies saw
+852 2996 6565 the likes of the AUD and NZD strengthen relative to the USD. However, while the Fed has taken
Daragh Maher fewer steps towards policy normalisation than some, it did begin tightening in early November. The
Head of Research,
Americas/Head of FX Strategy,
Fed formally announced it would start tapering its bond purchases in mid-November by
US USD15bn per month. The initial reaction for the USD was muted, as the currency appears to
daragh.maher@us.hsbc.com have moved ahead of the shift higher in US short-end rates (Chart 1). Broadly speaking, we do
+1 212 525 4114 still expect gradual Fed normalisation to be USD-supportive in the months ahead, however.
Dominic Bunning
Head of European FX Research We have also seen greater signs that the levels of rates and the carry trade have become more
HSBC Bank plc important for FX in the last few months, as explained in G10 FX: The rate debate (19 Oct 2021).
dominic.bunning@hsbcib.com
+44 20 7992 2113 As such, terminal interest rates may matter more for G10 FX in 2022. Market rate expectations
for the US’s “terminal” interest rate puts the USD near the front of the pack. In our view, despite
the slower start than some others, the overall shift towards normalisation and the likely more
persistent tightening cycle expected by the Fed should help to sustain USD resilience.
Our USD framework, which looks at FX through a lens of sequentially slowing global growth and
Fed normalisation, points to the USD being near the front of the pack through the rest of 2021
and into 2022, as highlighted in Currency Outlook: The final stretch (15 Oct 2021).
Figure 22. USD overtaken short-end rates Figure 23. Levels of rates are USD
supportive
BBDXY Index (lhs) US 2y yields (rhs) 5y1m fwd rate (x, ppt) vs FX performance (y, %)
% 2.0% AUD
1170 0.55 CAD
1.5% NZD
0.50 CHF USD
1160 1.0%
0.45 0.5%
1150 0.40 SEK
0.0% NOK
0.35 -0.5%
1140
0.30 -1.0%
1130 0.25 R² = 0.5531
-1.5% EUR
GBP
0.20 -2.0%
1120
0.15 -2.5% JPY
1110 0.10 -3.0%
Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 0.00 1.00 2.00 3.00
Source: Bloomberg, HSBC Source: Bloomberg, HSBC; FX performance measured versus the USD
28
10 November 2021
Convictions and forecasts
Table 5. All region conviction table

Conviction ____________________ Bond ___________________ ______ Yield change (bp) _____
Yield as of 08
1-month Benchmark Duration Nov 1m 3m 12m
Major markets
US ◄ Neutral ► T 1 1/4 08/15/31 9.12 1.49 -13 16 56
Germany ▼ Mildly Bullish ▼ DBR 0 08/15/31 9.79 -0.25 -9 22 27
France ▼ Mildly Bullish ▼ FRTR 0 11/25/31 10.03 0.10 -9 22 35
Italy ▼ Mildly bearish ▼ BTPS 0.95 12/01/31 9.50 0.89 0 33 12
Spain ▼ Mildly bearish ▼ SPGB 0 1/2 10/31/31 9.71 0.43 -6 19 24
UK ▼ Neutral ▼ UKT 0 1/4 07/31/31 9.56 0.85 -30 28 49
Japan ◄ Neutral ► JGB 0.1 09/20/31 9.80 0.06 -2 5 4
Canada ▲ Mildly bullish ▲ CAN 1 1/2 06/01/31 8.80 1.62 0 38 88
Australia ◄ Neutral ► ACGB 1 11/21/31 9.42 1.75 14 58 101
Mainland
China**
APAC
Taiwan ◄ Neutral ► TGB 0 1/2 10/22/31 9.58 0.54 5 9 22
Hong Kong ◄ Neutral ► HKGB 2.24 08/27/29 7.15 1.32 7 37 95
Singapore ◄ Neutral ► SIGB 1 5/8 07/01/31 8.83 1.71 1 37 93
Korea ◄ Mildly Bullish ► KTB 2 06/10/31 8.58 2.37 -7 38 82
Malaysia ◄ Neutral ► MGS 2.632 04/15/31 8.20 3.45 -5 35 100
Thailand ◄ Neutral ► THAIGB 2 12/17/31 9.04 1.90 -6 37 58
Philippines ▼ Mildly Bearish ▼ RPGB 5 7/8 03/01/32 7.73 4.96 40 103 189
Indonesia ◄ Mildly bullish ► INDOGB 6 3/8 04/15/32 7.55 6.02 -20 -50 -19
India ◄ Mildly Bearish ► IGB 6.1 07/12/31 7.06 6.30 -2 7 41
LatAm
Mexico ◄ Neutral ► MBONO 7 3/4 05/29/31 6.58 7.30 -18 27 126
Brazil ▼ Mildly bearish ▼ BNTNF 10 01/01/31 5.24 11.74 87 180 420
Chile ◄ Mildly bearish ► BTPCL 6 01/01/32 7.15 6.15 -76 129 353
Colombia ◄ Neutral ► COLTES 7 3/4 09/18/30 6.18 7.92 34 70 225
Argentina* ◄ Bearish ► ARGTES 15.5 10/17/26 2.13 50.70 64 608 -59
CEEMEA
Czech 82 153
◄ Neutral ► CZGB 1 3/4 06/23/32 9.40 2.61 52
Republic
Hungary ◄ Neutral ► HGB 2 1/4 04/20/33 9.57 3.89 37 106 176
Poland ◄ Mildly bearish ► POLGB 1 3/4 04/25/32 9.22 2.91 50 114 169
Russia ◄ Bullish ► RFLB 6.9 07/23/31 6.53 7.31 68 121 237
Turkey ◄ Bearish ► TURKGB 11.7 11/13/30 4.41 18.42 23 134 na
Romania ◄ Mildly bullish ► ROMGB 3.65 09/24/31 7.94 4.92 19 112 176
Israel ◄ Mildly bullish ► ILGOV 1 03/31/30 7.95 1.21 -1 24 31
South Africa ◄ Mildly bullish ► SAGB 8 1/4 03/31/32 6.59 9.79 -7 47 102
Source: HSBC, Bloomberg. Note: direction of arrows shows change of view from last Fixed Income Asset Allocation. *Argentina uses 5Y benchmark. Turkey ‘na’ yield data due to new 10Y benchmark. Yields as of 8 Nov close.
**Forecasts for names on the HSBC Research Restricted List are not included in the above table
29
10 November 2021
Table 6. Forecast summary: 10Y yields (%)

Market 8 Nov Q4 '21 Q1 '22 Q2 '22 Q3 '22 Q4 '22 Q1 '23 Q2 '23
Major markets
United States 1.49 1.50 () 1.38 () 1.25 () 1.13 () 1.00 () 1.00 () 1.00 ()
Germany -0.25 -0.30 () -0.30 () -0.30 () -0.40 () -0.50 () -0.50 () -0.50 ()
France 0.10 0.05 () 0.00 () 0.00 () -0.10 () -0.20 () -0.20 () -0.20 ()
Italy 0.89 0.80 () 0.70 () 0.70 () 0.55 () 0.40 () 0.40 () 0.40 ()
Spain 0.43 0.35 () 0.30 () 0.30 () 0.20 () 0.05 () 0.05 () 0.05 ()
UK 0.85 1.00 () 1.00 () 0.90 () 0.75 () 0.75 () 0.75 () 0.75 ()
Japan 0.06 0.10 () 0.10 () 0.05 () 0.05 () 0.05 () 0.05 () 0.05 ()
Canada 1.62 1.55 () 1.35 () 1.15 () 0.95 () 0.75 () 0.75 () 0.75 ()
Australia 1.75 1.80 () 1.80 () 1.70 () 1.60 () 1.40 () 1.40 () 1.40 ()
China** 2.90
APAC
Taiwan 0.54 0.50 (+0.10) 0.40 () 0.40 () 0.40 () 0.40 () 0.40 () 0.40 ()
Hong Kong 1.32 1.40 (+0.20) 1.30 (+0.30) 1.20 (+0.20) 1.20 (+0.20) 1.10 (+0.10) 1.10 (+0.10) 1.10 (+0.10)
Singapore 1.71 1.60 (+0.40) 1.50 (+0.30) 1.35 (+0.15) 1.20 () 1.10 (-0.10) 1.10 (-0.10) 1.10 (-0.10)
Korea 2.37 2.20 (+0.20) 2.10 (+0.20) 2.00 (+0.20) 2.10 (+0.30) 2.00 (+0.20) 2.00 (+0.20) 2.00 (+0.20)
Malaysia 3.45 3.50 (+0.50) 3.40 (+0.70) 3.30 (+0.60) 3.30 (+0.60) 3.40 (+0.70) 3.50 (+0.80) 3.50 (+0.80)
Thailand 1.90 1.90 (+0.20) 1.90 (+0.10) 2.00 () 1.90 (-0.10) 1.80 (-0.20) 1.80 (-0.20) 1.80 (-0.20)
Philippines 4.96 4.80 (+0.20) 4.70 (+0.10) 4.50 (-0.30) 4.50 (-0.30) 4.50 (-0.30) 4.50 (-0.30) 4.50 (-0.30)
Indonesia 6.02 5.90 () 6.00 () 6.20 () 6.50 () 6.80 () 6.80 () 6.80 ()
India 6.30 6.50 () 6.60 () 6.80 () 6.80 () 6.80 () 6.80 () 6.80 ()
LatAm
Mexico 7.30 7.75 (+0.20) 7.50 (+0.35) 7.50 (+0.60) 7.40 (+0.70) 7.65 (+0.75) 7.40 (+0.70) 6.70 (+0.10)
Brazil 11.74 12.65 (+1.40) 12.55 (+1.10) 12.30 (+0.75) 12.50 (+1.60) 12.20 (+1.75) 12.00 (+1.70) 11.85 (+1.95)
Chile 6.15 6.75 (+1.05) 6.50 (+1.20) 6.15 (+1.15) 6.00 (+1.35) 5.90 (+1.40) 5.70 (+1.20) 5.30 (+1.00)
Colombia 7.92 8.00 (+0.85) 8.25 (+0.75) 8.50 (+1.40) 8.10 (+1.10) 7.80 (+1.00) 7.10 (+0.50) 6.90 (+0.50)
Argentina* 50.70 52.00 (+2.00) 55.00 (+3.00) 51.00 (+3.00) 46.00 (+2.00) 44.00 (+3.00) 41.00 (-3.00) 40.00 (-4.00)
CEEMEA
Czech Republic 2.61 2.75 (+0.34) 2.45 (-0.11) 2.25 (-0.21) 2.15 (-0.11) 2.15 (+0.09) 2.15 (-0.16) 2.15 (-0.41)
Hungary 3.89 4.00 (+0.18) 3.80 (-0.17) 3.50 (-0.37) 3.05 (-0.62) 3.05 (-0.42) 3.05 (-0.67) 3.05 (-0.92)
Poland 2.91 3.00 (+0.24) 3.10 (+0.19) 2.75 (-0.06) 2.75 (+0.14) 2.75 (+0.34) 2.75 (+0.09) 2.75 (-0.16)
Russia 7.31 8.00 (+0.75) 7.50 (+0.75) 7.00 (+0.75) 6.50 (+1.00) 5.50 () 5.50 () 5.50 ()
Turkey 18.42 20.00 (+1.00) 19.00 (-0.50) 18.50 (-0.50) 15.50 (-3.00) 15.00 (-3.00) 15.00 (-2.50) 15.00 (-1.50)
Romania 4.92 5.00 () 4.75 () 4.25 () 4.00 () 3.50 () 3.50 () 3.50 (+0.25)
Israel 1.21 1.25 () 1.00 (-0.30) 0.85 (-0.35) 0.85 (-0.15) 0.85 (+0.05) 0.85 (-0.20) 0.85 ()
South Africa 9.79 9.75 (-0.25) 9.25 (-0.50) 8.75 (-0.50) 8.50 (-0.25) 8.50 () 8.50 () 8.50 ()
Source: HSBC, Bloomberg. Change from last month's Asset Allocation shown in parentheses. *Argentina uses 5Y benchmark. **Forecasts for names on the HSBC Research Restricted List are not included in the above table
30
10 November 2021
Table 7. Major market forecasts

8 November Q4 '21 Q1 '22 Q2 '22 Q3 '22 Q4 '22 Q1 '23 Q2 '23
USD
Bond yields (%) 2Y 0.45 0.25 0.30 0.35 0.40 0.45 0.45 0.45
5Y 1.12 0.95 0.90 0.85 0.80 0.80 0.80 0.80
10Y 1.49 1.50 1.38 1.25 1.13 1.00 1.00 1.00
30Y 1.88 2.10 1.98 1.85 1.73 1.60 1.60 1.60
Policy rate (%) 0.125 0.125 0.125 0.125 0.125 0.125 #N/A #N/A
DEM
Bond yields (%) 2Y -0.73 -0.70 -0.70 -0.70 -0.75 -0.75 -0.75 -0.75
5Y -0.56 -0.62 -0.62 -0.62 -0.70 -0.75 -0.75 -0.75
10Y -0.25 -0.30 -0.30 -0.30 -0.40 -0.50 -0.50 -0.50
30Y 0.11 0.20 0.20 0.15 0.05 -0.10 -0.10 -0.10
Policy rate (%) -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 #N/A #N/A
FRF
Bond yields (%) 2Y -0.74 -0.65 -0.65 -0.65 -0.70 -0.70 -0.70 -0.70
5Y -0.37 -0.42 -0.37 -0.37 -0.50 -0.55 -0.55 -0.55
10Y 0.10 0.05 0.00 0.00 -0.10 -0.20 -0.20 -0.20
30Y 0.78 0.80 0.80 0.75 0.65 0.50 0.50 0.50
Policy rate (%) -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 #N/A #N/A
ITL
Bond yields (%) 2Y -0.30 -0.40 -0.40 -0.40 -0.45 -0.45 -0.45 -0.45
5Y 0.12 0.18 0.13 0.08 -0.10 -0.20 -0.20 -0.20
10Y 0.89 0.80 0.70 0.70 0.55 0.40 0.40 0.40
30Y 1.75 1.70 1.80 1.75 1.60 1.40 1.40 1.40
Policy rate (%) -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 #N/A #N/A
ESP
Bond yields (%) 2Y -0.65 -0.50 -0.50 -0.50 -0.55 -0.55 -0.55 -0.55
5Y -0.28 -0.32 -0.22 -0.22 -0.30 -0.35 -0.35 -0.35
10Y 0.43 0.35 0.30 0.30 0.20 0.05 0.05 0.05
30Y 1.23 1.30 1.30 1.25 1.15 1.00 1.00 1.00
Policy rate (%) -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 #N/A #N/A
GBP
Bond yields (%) 2Y 0.41 0.60 0.60 0.50 0.40 0.40 0.30 0.30
5Y 0.57 0.75 0.70 0.60 0.50 0.50 0.50 0.50
10Y 0.85 1.00 1.00 0.90 0.75 0.75 0.75 0.75
30Y 1.00 1.20 1.30 1.20 1.10 1.00 1.00 1.00
Policy rate (%) 0.10 0.10 0.25 0.25 0.50 0.50 #N/A #N/A
JPY
Bond yields (%) 2Y -0.12 -0.10 -0.10 -0.10 -0.10 -0.10 -0.10 -0.10
5Y -0.10 -0.05 -0.05 -0.05 -0.05 -0.05 -0.05 -0.05
10Y 0.06 0.10 0.10 0.05 0.05 0.05 0.05 0.05
30Y 0.68 0.70 0.70 0.60 0.60 0.60 0.60 0.60
Policy rate (%) -0.10 -0.10 -0.10 -0.10 -0.10 -0.10 #N/A #N/A
CAD
Bond yields (%) 2Y 0.95 0.80 0.73 0.65 0.60 0.60 0.60 0.60
5Y 1.40 1.30 1.11 0.93 0.81 0.70 0.70 0.70
10Y 1.63 1.55 1.35 1.15 0.95 0.75 0.75 0.75
30Y 1.98 2.05 1.83 1.60 1.38 1.15 1.15 1.15
Policy rate (%) 0.25 0.25 0.25 0.50 0.75 1.00 #N/A #N/A
AUD
Bond yields (%) 2Y 0.60 0.70 0.80 0.80 0.80 0.80 0.90 0.90
5Y 1.27 1.40 1.50 1.40 1.40 1.20 1.20 1.20
10Y 1.75 1.80 1.80 1.70 1.60 1.40 1.40 1.40
30Y 2.46 2.60 2.70 2.60 2.50 2.30 2.30 2.30
Policy rate (%) 0.10 0.10 0.10 0.10 0.10 0.10 #N/A #N/A
Source: HSBC forecasts, Bloomberg.
31
10 November 2021
Table 8. Major market ASW and BE forecasts

8 November Q4 '21 Q1 '22 Q2 '22 Q3 '22 Q4 '22 Q1 '23 Q2 '23
USD
Asset swap (bp) 10Y -3 -2 -2 -2 -3 -5 -5 -5
BE rate (bp)* 5Y 296 280 270 250 210 200 195 190
DEM
Asset swap (bp) 10Y -39 -32 -32 -32 -32 -32 -32 -32
BE rate (bp)** 5Y 206 200 180 160 150 140 140 140
FRF
Asset swap (bp) 10Y -5 3 -2 -2 -2 -2 -2 -2
BE rate (bp)** 5Y 176 170 160 140 130 120 120 120
ITL
Asset swap (bp) 10Y 75 78 68 68 63 58 58 58
ESP
Asset swap (bp) 10Y 29 33 28 28 28 23 23 23
GBP
Asset swap (bp) 10Y -25 na na na na na na na
BE rate (bp)** 5Y 470 480 480 480 450 440 440 440
JPY
Asset swap (bp) 10Y -5 -5 -5 -5 -5 -5 -5 -5
BE rate (bp)* 5Y 55 20 20 20 15 15 15 15
CAD
Asset swap (bp) 10Y -45 -43 -40 -40 -40 -40 -40 -40
BE rate (bp)* 5Y 222 210 200 190 170 170 170 170
AUD
Asset swap (bp) 10Y -22 -15 -15 -15 -15 -15 -15 -15
BE rate (bp)* 5Y 224 200 200 200 190 190 190 190
Source: HSBC forecasts, Bloomberg. *cash breakeven **inflation swap
32
10 November 2021
Table 9. Credit forecasts

Asset class Stance End Dec 20 OAS End Dec 21 forecast Spread change 2021 implied total return 2021 implied excess return
(bp) (bp) (bp) (bp) (bp)
USD IG Neutral na na na na na
EUR IG Neutral na na na na na
GBP IG Neutral na na na na na
USD HY Neutral na na na na na
EUR HY Neutral na Na Na na na
Asia credit – ADBI 180 145 -35 159 707

Neutral
Asia credit – AHBI-Corp 725 1000 +275 -1362 -1263
Source: HSBC, see European and US Credit Outlook 2021: The price of perfection (24 November 2020) for USD/EUR/GBP.
Note: Based on Bloomberg indices for USD, EUR, GBP and Markit iBoxx indices for Asia credit. Total return measures price appreciation and coupon accrual with reinvestment of coupons and index rebalancing at month end, taking transaction
costs into account. USD/EUR/GBP spread is OAS. Asia credit spread is the average spread of the semi-annual benchmark spread of the relevant index. 2021 implied total and excess return forecasts are from 31 Dec 20 to 31 Dec 21.
Table 10. EM monetary policy monitor (%)

_________________ HSBC Forecast (EOP) __________________ _______________ Market implied rate (EOP) ________________
Last Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022
LatAm
Brazil 7.75 9.25 10.25 10.25 9.75 8.50 9.72 12.74 13.63 13.58 13.21
Chile 2.75 4.00 5.50 6.00 6.00 6.00 3.91 4.67 5.79 5.96 5.45
Colombia 2.00 3.25 4.00 4.50 4.50 4.50 3.19 4.70 6.04 6.62 6.80
Mexico 4.75 5.75 6.00 6.00 6.00 6.00 5.38 6.10 6.79 7.20 7.45
EMEA
South Africa 3.50 3.75 4.00 4.25 4.50 4.75 3.78 4.48 4.89 5.59 5.83
Poland 1.25 1.50 2.00 2.00 2.00 2.00 1.86 2.93 3.11 2.89 3.39
Hungary 1.80 2.10 2.40 2.40 2.40 2.40 2.13 3.35 3.68 3.73 3.35
Israel 0.10 0.10 0.10 0.10 0.10 0.10 0.12 0.20 0.37 0.56 0.69
Asia
India 4.00 4.00 4.00 4.00 4.25 4.50 4.11 4.30 4.78 4.99 5.50
South Korea 0.75 1.00 1.00 1.00 1.25 1.25 0.85 1.29 1.61 1.80 1.90
Malaysia 1.75 1.75 1.75 1.75 2.00 2.00 1.76 1.85 1.98 2.12 2.54
Thailand 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.54 0.60 0.76 0.99
Taiwan 1.125 1.125 1.125 1.125 1.125 1.125 1.20 1.04 1.07 1.10 1.25
Source: HSBC, Bloomberg.
33
10 November 2021
10Y government bond yields: HSBC forecasts vs implied forward yields and Bloomberg survey medians
2.30 2.20
Canada 2.15
US 2.13 2.00 BBG medians
2.10 BBG medians
1.90 1.80 1.81
1.60 Forwards
Yield (%)
1.70 1.74
Yield (%)
Forwards 1.40
1.50
1.20
1.30 1.00
1.10 HSBC forecast HSBC forecast
0.80 0.75
1.00
0.90 0.60
Nov 21 Mar 22 Jul 22 Nov 22 Mar 23 Jul 23 Nov 21 Mar 22 Jul 22 Nov 22 Mar 23 Jul 23
1.60
UK 1.50 2.06
2.00 Australia Forwards
1.40 BBG medians 2.00
1.20 1.80 BBG medians

Forwards
Yield (%)
Yield (%)
1.00 0.97 1.60
0.80 HSBC forecast
0.75
1.40 1.40
0.60 HSBC forecast
0.40 1.20
0.30 0.60
Germany France 0.54
BBG medians
0.15 0.15 0.45
BBG medians
0.00 0.30 0.28
Forwards
Yield (%)
Yield (%)
-0.15 -0.16 0.15 Forwards

-0.30 0.00
-0.45 HSBC forecast -0.15 HSBC forecast

-0.50 -0.20
-0.60 -0.30
1.30 1.20
Italy Forwards 1.20 1.05 Spain 1.00
1.10 BBG medians
1.18 0.90
0.90 BBG medians 0.75 Forwards 0.67
Yield (%)
Yield (%)
0.60
0.70 0.45
0.30
0.50 HSBC forecast
0.40 0.15 HSBC forecast
0.30 0.00 0.05
0.20
Japan
0.15 Forwards
0.14
0.10 0.10
Yield (%)
BBG medians
0.05 0.05
HSBC forecast
0.00
-0.05
Nov 21 Mar 22 Jul 22 Nov 22 Mar 23 Jul 23
Source: HSBC, Bloomberg.
34
10 November 2021
Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s)
whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering
analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or
issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other
views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect
their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Steven Major, CFA, Lawrence Dyer, Shrey Singhal, CFA, Frank
Will, Song Jin Lee, CFA, Jonathan White, Mario Robles, Melissa McCallum, Chris Attfield, Daniela Russell, Radoslaw Bodys,
Andre de Silva, CFA, Pin Ru Tan, Dilip Shahani, Dominic Kini, Paul Mackel, Daragh Maher and Dominic Bunning
Important disclosures
Foreign exchange: Basis for financial analysis
This document has been prepared and is being distributed by the Research Department of HSBC and is intended solely for the
clients of HSBC and is not for publication to other persons, whether through the press or by other means.
This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to
buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Advice in this document
is general and should not be construed as personal advice, given it has been prepared without taking account of the objectives,
financial situation or needs of any particular investor. Accordingly, investors should, before acting on the advice, consider the
appropriateness of the advice, having regard to their objectives, financial situation and needs. If necessary, seek professional
investment and tax advice.
Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may
not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the
investment products mentioned in this document and take into account their specific investment objectives, financial situation or
particular needs before making a commitment to purchase investment products.
The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor
may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value
that could equal or exceed the amount invested. Value and income from investment products may be adversely affected by
exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative of future
results.
HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which
depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations.
HSBC’s currency trade ideas on deliverable FX forwards (DF) or non-deliverable FX forwards (NDF) are usually identified on a
time horizon of up to three months, although HSBC reserves the right to extend this time horizon on a discretionary, trade-by-
trade basis.
HSBC believes an investor's decision to buy or sell an instrument should depend on individual circumstances such as the
investor's existing holdings and other considerations. Different securities firms use a variety of terms as well as different systems
to describe their recommendations. Investors should carefully read the definitions of the recommendations used in each research
report. In addition, because research reports contain more complete information concerning the analysts' views, investors should
carefully read the entire research report and should not infer its contents from the recommendation. In any case, recommendations
should not be used or relied on in isolation as investment advice.
Definitions for currency trades on DFs and NDFs

Buy: refers to buying the first currency in the named pair in exchange for the second currency in the named pair.
Sell: refers to selling the first currency in the named pair in exchange for the second currency in the named pair.
35
10 November 2021
The tenor of the instrument will be denoted and will refer to a settlement date relative to the opening date of the trade idea e.g.
1m refers to a settlement date 1 month forward from the open date of the trade idea. NDF trades normally fix two working days
prior to the settlement date.
Distribution of currency trades

The nature of foreign exchange forward trade ideas is such that there will always be an equal number of buy and sell trades
(buying one currency in exchange for selling another), both outstanding and historically.
Fixed income: Basis for financial analysis

This report is designed for, and should only be utilised by, institutional investors. Furthermore, HSBC believes an investor's
decision to make an investment should depend on individual circumstances such as the investor's existing holdings and other
considerations.
HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which
depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given
these differences, HSBC has two principal aims in its fixed income research: 1) to identify long-term investment opportunities
based on particular themes or ideas that may affect the future earnings or cash flows of companies in corporate credit and based
on country-specific ideas or themes that may affect the performance of these bonds in the case of covered bonds, in both cases
on a six-month time horizon; 2) to identify trade ideas on a time horizon of up to four months, relating to specific instruments,
which are predominantly derived from relative value considerations or driven by events and which, in the case of credit research,
may differ from our long-term opinion on an issuer. Buy or Sell refer to a trade call to buy or sell that given instrument; HSBC has
assigned a fundamental recommendation structure, as described below, only for its longer-term investment opportunities.
HSBC believes an investor's decision to buy or sell a bond should depend on individual circumstances such as the investor's
existing holdings and other considerations. Different securities firms use a variety of terms as well as different systems to describe
their recommendations. Investors should carefully read the definitions of the recommendations used in each research report. In
addition, because research reports contain more complete information concerning the analysts' views, investors should carefully
read the entire research report and should not infer its contents from the recommendation. In any case, recommendations should
not be used or relied on in isolation as investment advice.
HSBC Global Research is not and does not hold itself out to be a Credit Rating Agency as defined under the Hong Kong Securities
and Futures Ordinance.
Definitions for fundamental credit and covered bond recommendations

Overweight: For corporate credit, the issuer’s fundamental credit profile is expected to improve within the next six months. For
covered bonds, the bonds issued in this country are expected to outperform those of the other countries in our coverage over the
next six months.
Neutral: For corporate credit, the issuer’s fundamental credit profile is expected to remain stable for up to six months. For covered
bonds, the bonds issued in this country are expected to perform in line with those of the other countries in our coverage over the
next six months.
Underweight: For corporate credit, the issuer’s fundamental credit profile is expected to deteriorate within the next six months.
For covered bonds, the bonds issued in this country are expected to underperform those of other countries in our coverage over
the next six months.
Definitions for trades (Rates & Credit)

Buy and Sell refer to a trade call to buy or sell a bond, option on an interest rate swap ("swaption"), interest rate cap or floor,
inflation cap or floor, or Total Return Swap ("TRS"). The buyer/seller of a TRS receives/pays the total return of the underlying
instrument or index at the end of the period and pays/receives the funding leg.
Buy protection and Sell protection refer to a credit default swap (CDS): the protection buyer/seller is effectively selling/buying
the reference entity's credit risk.
Pay and receive refer to a trade call to pay or receive the fixed leg of an interest rate swap (IRS), a non-deliverable IRS, the first-
named leg of a basis swap, the realised inflation leg of an inflation swap, or a forward rate agreement (FRA). An investor that
executes a pay or receive trade is said to be "paid" or "received."
36
10 November 2021
Payer and receiver refer to inflation caps or floors and to swaptions: a payer is an option giving the right but not the obligation to
enter a paid position in an interest rate or inflation swap, and a receiver is an option giving the right but not the obligation to enter
a received position in an interest rate or inflation swap.
ASW (also asset-swap, Buy on asset swap, Buy on an asset-swapped basis): Buy a bond packaged with a swap that is tailored
to eliminate the bond’s interest rate risk, effectively transforming the bond to a floating rate instrument whilst preserving the credit
exposure to the bond issuer.
RASW (also reverse asset-swap, Sell on asset swap, Sell on an asset swapped basis): Sell a bond packaged with a swap that is
tailored to eliminate the bond’s interest rate risk, effectively transforming the bond to a floating rate instrument whilst preserving
the credit exposure to the bond issuer.
Distribution of fundamental credit and covered bond recommendations

As of 30 September 2021, the distribution of all independent fundamental credit recommendations published by HSBC
is as follows:
Overweight 25% (56% of these provided with Investment Banking Services in the past 12 months)
Neutral 49% (39% of these provided with Investment Banking Services in the past 12 months)
Underweight 25% (35% of these provided with Investment Banking Services in the past 12 months)
For the purposes of the distribution above the following mapping structure is used: Overweight = Buy, Neutral = Hold and
Underweight = Sell. For rating definitions under both models, please see "Definitions for fundamental credit and covered bond
recommendations" above.
Distribution of trades
As of 30 September 2021, the distribution of all trades published by HSBC is as follows:
Buy 79% (65% of these provided with Investment Banking Services in the past 12 months)
Sell 21% (50% of these provided with Investment Banking Services in the past 12 months)
For the purposes of the distribution above the following mapping structure is used: Buy/Sell protection/Receive/Buy Receiver/Sell
Payer = Buy; and Sell/Buy protection/Pay/Buy Payer/Sell Receiver = Sell. ASW is counted as a buy of the bond and a paid swap,
and RASW as a sell of the bond and a received swap. For rating definitions under both models, please see "Definitions for trades
(Rates and Credit)" above.
For the distribution of non-independent ratings published by HSBC, please see the disclosure page available at
http://www.hsbcnet.com/gbm/financial-regulation/investment-recommendations-disclosures.
Recommendation changes for long-term investment opportunities

To view a list of all the independent fundamental recommendations disseminated by HSBC during the preceding 12-month period,
and the location where we publish our quarterly distribution of non-fundamental recommendations, please use the following links
to access the disclosure page:
Clients of Global Research and Global Banking and Markets: www.research.hsbc.com/A/Disclosures
Clients of HSBC Private Banking: www.research.privatebank.hsbc.com/Disclosures
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt
(including derivatives) of companies covered in HSBC Research on a principal or agency basis or act as a market maker or
liquidity provider in the securities/instruments mentioned in this report.
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking,
sales & trading, and principal trading revenues.
Whether, or in what time frame, an update of this analysis will be published is not determined in advance.
Non-U.S. analysts may not be associated persons of HSBC Securities (USA) Inc, and therefore may not be subject to FINRA
Rule 2241 or FINRA Rule 2242 restrictions on communications with the subject company, public appearances and trading
securities held by the analysts.
37
10 November 2021
Economic sanctions imposed by the EU, the UK, the USA and certain other jurisdictions generally prohibit transacting or dealing
in any debt or equity issued by Russian SSI entities on or after 16 July 2014 (Restricted SSI Securities). Economic sanctions
imposed by the USA also generally prohibit US persons from purchasing or selling publicly traded securities issued by companies
designated by the US Government as “Chinese Military-Industrial Complex Companies” (CMICs) or any publicly traded securities
that are derivative of, or designed to provide investment exposure to, the targeted CMIC securities (collectively, Restricted CMIC
Securities). This report does not constitute advice in relation to any Restricted SSI Securities or Restricted CMIC Securities, and
as such, this report should not be construed as an inducement to transact in any Restricted SSI Securities or Restricted CMIC
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For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company
available at www.hsbcnet.com/research. HSBC Private Banking clients should contact their Relationship Manager for queries
regarding other research reports. In order to find out more about the proprietary models used to produce this report, please contact
the authoring analyst.
Additional disclosures
1 This report is dated as at 10 November 2021.
2 All market data included in this report are dated as at close 08 November 2021, unless a different date and/or a specific
time of day is indicated in the report.
3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of
Research operate and have a management reporting line independent of HSBC's Investment Banking business.
Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses
to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
4 You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest
payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the
price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument,
and/or (iii) measuring the performance of a financial instrument or of an investment fund.
Production & distribution disclosures

1. This report was produced and signed off by the author on 09 Nov 2021 16:16 GMT.
2. In order to see when this report was first disseminated please see the disclosure page available at
https://www.research.hsbc.com/R/34/pvZJ667
38
10 November 2021
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[1181958]
39
Global Fixed Income Research Team
Rates Credit
Global Head of Fixed Income Research EMEA
Steven Major, CFA +852 2996 6590
steven.j.major@hsbc.com.hk Head of European Credit Research
Jonathan White +44 20 7991 5195
EMEA
Head of UK Rates Strategy Credit & Green Bond Strategist
Daniela Russell +44 20 7991 1352 Dominic Kini +44 20 7991 5599
daniela.russell@hsbcib.com dominic.kini@hsbcib.com
Chris Attfield +44 20 7991 2133 Song Jin Lee, CFA +44-20 7991 5259
christopher.attfield@hsbcib.com songjin.lee@hsbc.com
Head of Covered Bond Research Tom Russell + 44 20 3359 5666

Frank Will +49 211 910 2157 thomas.russell@hsbc.com
frank.will@hsbc.de
Asia
Head of CEEMEA Rates Strategy
Radoslaw Bodys +44 20 7991 5882 Head of Global Research, Asia-Pacific
radoslaw.bodys@hsbc.com Dilip Shahani +852 2822 4520
dilipshahani@hsbc.com.hk
Asia Keith Chan +852 2822 4522

Head of Global EM Rates Research keithkfchan@hsbc.com.hk
André de Silva, CFA +852 2822 2217
andre.de.silva@hsbc.com.hk Louisa Lam +852 2996 6586
louisa.m.c.lam@hsbc.com.hk
Pin Ru Tan +65 6658 8782
pin.ru.tan@hsbc.com.sg Helen Huang +852 2996 6585
helendhuang@hsbc.com.hk
Himanshu Malik +852 3941 7006
himanshu1malik@hsbc.com.hk Reks Ng +852 3941 7066
reks.ng@hsbc.com.hk
Hazel Lai +852 2288 7467
hazel.k.h.lai@hsbc.com.hk Cathy Cheng +852 3941 1320
cathy.l.m.cheng@hsbc.com.hk
Grace Wang +852 2996 6569
grace.z.j.wang@hsbc.com.hk Multi-Asset
Multi-Asset Strategist
Americas Max Kettner +44 20 7991 5045
Head of US Rates Strategy maximilian.l.kettner@hsbc.com
Larry Dyer +1 212 525 0924
lawrence.j.dyer@us.hsbc.com Duncan Toms +44 20 7991 3025
duncan.toms@hsbc.com
Shrey Singhal, CFA +1 212 525 5126
shrey.singhal@us.hsbc.com Edward Parker +44 20 3359 7563
edward.parker@hsbc.com
Head of LatAm Rates Strategy
Mario Robles +1 212 525 4119
mario.robles@us.hsbc.com
Melissa McCallum +44 20 7991 5919

melissa.mccallum@hsbc.com
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Something’s gotta give Global

 The long segment of the US curve has potential to steepen,

US long end – next move is steeper Page 4

Eurozone non-core moved to mildly bearish Page 14

Australia and the UK giving the same message Pages 24 and 16

Japan sees increased overseas interest Page 23

It was a bond market recovery of sorts Page 3

Disclosures & Disclaimer Issuer of report: The Hongkong and Shanghai

Convictions and forecasts 29

 down ------ yields ------- up 

Steven Major, CFA

Figure 1. Long-end of USD forward swap curve already very flat

90 2003 selloff Lehman Taper Trump COVID-19

Forward swap curve is close

Applying pure expectations to the yield curve

Figure 2. Something’s gotta give

 The flat US long-term forward curve has priced in Fed tightening,

Figure 3. Very little term premium in bond sector

TIPS: Range games

Source: HSBC, Bloomberg

Source: HSBC, Bloomberg

Strong market differentiation

Figure 6: Asset swap spread levels of selected SSA issuers

10 BNG RENTEN NRWBK CADES

Song Jin Lee, CFA

Table 3. LatAm Fixed Income outlook –

Local rates outlook Neutral Mildly bearish Mildly bearish Neutral

Chris Attfield Eurozone core

Figure 8. We expect yields to fall over time as headline inflation abates

Figure 9. BTP spread volatility around October's ECB

Source: HSBC, Bloomberg

Figure 10. Iota spreads have widened sharply*

Source: HSBC, Bloomberg * relative z-spread between linker and nominal

yields is likely over the

-10 30-50Y BE spread (LHS)

Source: HSBC, Bloomberg

9-11yr 11-20yr 20-30yr

Song Jin Lee, CFA

Song Jin Lee, CFA

Source: HSBC calculations, Bloomberg

Table 4. CEEMEA Fixed Income outlook

Local rates Mildly Mildly Mildly Mildly

 down ------ yields ------- up 

 Japan remains insulated from the volatility in other rates markets,

Andre de Silva, CFA Japan

2-week* net change in yields (bp)

Andre de Silva, CFA

Figure 18. RBA throws in the towel

0.80 extend YCC at

3Y ACGB April 2024 3Y ACGB November 2024

Figure 19. Real yields across EM

Source: HSBC, Bloomberg

Source: Bloomberg, HSBC

SLB Green Social Sustainability

Convictions and forecasts

Table 5. All region conviction table

Table 6. Forecast summary: 10Y yields (%)

Table 7. Major market forecasts

Table 8. Major market ASW and BE forecasts

Table 9. Credit forecasts

Asia credit – ADBI 180 145 -35 159 707