Bonds of two Asian countries, India and the Philippines, are most vulnerable amid fears of further economic downturns from the Omicron variant of COVID-19, according to a report Thursday.
Of the seven Asian countries, India and the Philippines have the steepest bond yield curves. As a result, any further fiscal stimulus from the government would come at a higher cost, Bloomberg reported.
His remark comes at a time when two Omicron cases have been reported. However, there are so far no known cases of the new stain in the Philippines.
Investors have worried about the threat posed by the new variant, which was first detected in South Africa last month. The global market has been under pressure as countries rushed to seal borders and impose travel bans to limit the spread of the new mutant. As health experts assess the seriousness of the Omicron, investors are treading cautiously and awaiting more information on the new variant.
The yield spread between two-year government bonds and 10-year government bonds is widest compared to the five-year average in India and the Philippines. Indeed, India’s borrowing program for the current fiscal year is already approaching an all-time high. And, for the Philippines, this year’s budget deficit is already at an all-time high.
Meanwhile, the Reserve Bank of India ended its bond buying program in September, which could add to the pressure on Indian bonds. In the Philippines, by contrast, rising yields prompted the government to reject a few bids at auctions in October.
In addition to fiscal constraints in both countries, higher inflation will also reduce the scope of monetary easing, according to the report.