Diverging monetary policies are driving some foreign investors to search for yields in U.S. markets, potentially bolstering U.S. bond-related ETFs.
According to BlackRock, while the U.S. Federal Reserve hikes interest rates and Asian central banks have chosen to stand pat, investors have driven up demand for fixed-income ETFs, reports Karen Yeung for South China Morning Post.
The Fed is expected to raise rates in each quarter for the rest of the year. Meanwhile, China, Korea and Sinagpore have not shown any signs of tightening rates any time soon – the People’s Bank of China even cut bank reserve requirement ratios last month, signalling its intent to lower commercial banks’ funding costs.
The divergence may be a result of stronger regional economic growth and subdued inflation among Asian economies. Furthermore, analysts argued that currency appreciation last year in Asia was mirrored by a weak U.S. dollar, which helped diminish the need for local rate hikes.
Given the current diverging environment, Asian investors are exhibiting increased demand for attractive yield generating assets, which could help bolster fixed-income ETFs.
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