ISMS 14: Regional Interest Rates – Low in Asia, Egypt and Frontiers on Fire
Listen on
Apple | Google | Spotify | YouTube | Other
Click here to get the PDF with all charts and graphs
Developed Market Regions – ST rates about to peak, LT rates are falling, inverted yield curve in DM Americas and Europe widened
Interest rate overview
- DM Americas 3m yield 4.8%, DM Europe 3%, DM Pacific much lower at 1.1%
- DM Americas 1yr yield 4.6%, DM Europe 2.8%, DM Pacific same as 3m yield at 1.1%
- DM Americas 10yr yield 3.5%, DM Europe 2.9%, DM Pacific 1.4% is higher than 3m and 1yr yield, normal yield curve
Year-on-year changes
- Biggest rise of 3m yield in Developed America
- World 3m yield was up 3.2ppts, DM Americas up 4.3ppts, DM Europe up 3.3ppts, DM Pacific up 1.1ppts
- Following 3m yield, 1yr yield YoY changes were most prominent in DM Americas and DM Europe
- World 1yr yield was up 1.9ppts, DM Americas up 3ppts, DM Europe up 2.9ppts, DM Pacific up 0.8ppts
- 10yr yield in DM Europe and DM Americas widened fastest, little movement in DM Pacific
- World 10yr yield was up 0.9ppts, DM Americas up 1.2ppts, DM Europe up 1.8ppts, DM Pacific up 0.4ppts
Rate progression
- 3m yield has risen most aggressively in DM Americas
- DM Europe yield moved at a similar pace to World
- DM Pacific yield only rose slightly, widening the 3m interest rate differential to other DM regions
- Unlike World, 1yr yield has fallen in all DM regions in March 2023
- 10yr yield in DM Americas and DM Europe moved up simultaneously
- DM Pacific 10yr yield stayed almost flat
- All DM 10yr rates fell MoM in March
Yield curve
- DM Americas yield curve has inverted the most among all DM regions
- In March 2023, the 3m yield was 1.3ppts higher than the 10yr yield
- The degree of inversion is similar to World
- DM Europe yield curve just inverted in March 2023
- The yield curve turned to negative territory as the 10yr yield dropped in March by 0.4ppts compared to February
- Though the inversion is much less extreme compared to World
- DM Pacific sees flattening yield curve over the past 12 months, but remains positive
- As of March 2023, the long-term 10yr yield was 0.3ppts higher compared to the short-term 3m yield
- One year earlier, the difference was 0.9ppts
Key points
- ST rates in DM Americas and Europe risen more aggressively than World, DM Pacific much slower
- Small increases in LT rate in all DM regions YoY, but fell MoM
- DM Pacific maintains a positive yield curve while inversion worsened in DM Americas and Europe
Emerging Market Regions – Massive ST rate hikes in ME&A and Frontier, LT rates more stable, no yield curve inversion in Asia
Interest rate overview
- EM Americas 3m yield 12.7%, EM Asia 3.2%, EM Europe 14.6%, EM ME&A 52.7%, Frontier markets 23%
- EM Americas 1yr yield 12.6%, EM Asia 3.2%, EM Europe 9.4%, EM ME&A at 23% is half 3m rate, Frontier markets 17.1%
- EM Americas 10yr yield 11.2%, EM Asia 3.6%, EM Europe 8.8%, EM ME&A 10yr yield at 15.4%, 1/3rd of 3m rate, Frontier markets 10yr yield 11.9%, half 1yr
Year-on-year changes
- 3m yield has risen in all EM regions; it was most extreme in ME&A and Frontier markets
- EM Americas 3m yield was up 3.1ppts, EM Asia up 0.9ppts, EM Europe up 0.3ppts, EM ME&A 3m yield was up 43.2ppts, Frontier 3m yield was up 10.6ppts
- 1yr yield saw a rise in all EM regions YoY, except in EM Europe
- EM Americas 1yr yield was up 1.8ppts, EM Asia up 0.8ppts, EM Europe down 3ppts, EM ME&A up 9.2ppts, Frontier up 4.3ppts
- 10yr yield surged in all EM regions, except EM Europe
- EM Americas 10yr yield was up 1ppts, EM Asia up 0.1ppts, EM Europe down 2.7ppts, EM ME&A up 2.7ppts, Frontier up 3.4ppts
Rate progression
- 3m yield has moved in different directions among EM regions
- ME&A and Frontier saw extreme increases in their 3m rates mainly driven by Egypt
- EM Asia and EM Europe actually stayed flat over the past 12 months
- Spotlight on Egypt Inflation went from 9% to 32% in 12 months
- Russia and Ukraine account for 80% of Egypt’s wheat imports
- Since the war, import prices skyrocketed
- 50% currency devaluation in 2016 and another 50% since March 2022
- 1yr yield in all EM regions higher than World, except Asia
- 10yr yield in EM regions were less fluctuating
- All EM regions have a higher long-term 10y yield than World
Yield curve
- EM Americas yield curve inverted slightly more than World
- EM Asia yield curve is the only EM regions which didn’t see an inversion of its yield curve yet
- Though, the yield curve has flattened over time
- In March, the difference between the 10y yield and 3m yield was just 0.4ppts
- One year earlier, the difference stood at 1.2ppts
- EM Europe yield curve inversion more than doubled over the past 12 months
- In March 2023, the long-term yield was 5.8ppts higher than the 3m yield
- 12 months ago, the difference was only 2.8ppts
- EM ME&A yield curve has massive inversion
- Given the aggressive increase in 3m yield, the inversion amounted to 37.4ppts in March 2023
- This compared to no inversion one year ago
- Frontier yield curve stays inverted in March 2023, but a bit less MoM
Key points
- ST rates exploded in ME&A and Frontier, EM Asia and Europe were more cautious in raising ST rates
- LT rates of all EM regions rose and remained above World; only EM Europe saw falling yield YoY
- Asia remains the sole EM region with no yield curve inversion, inversion looks painful for EM Europe, ME&A, and Frontier
Click here to get the PDF with all charts and graphs
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- The Become a Better Investor Community
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- FVMR Investing: Quantamental Investing Across the World
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points
- Achieve Your Goals
Connect with Andrew Stotz:
About the show & host, Andrew Stotz
Welcome to My Worst Investment Ever podcast hosted by Your Worst Podcast Host, Andrew Stotz, where you will hear stories of loss to keep you winning. In our community, we know that to win in investing you must take the risk, but to win big, you’ve got to reduce it.
Your Worst Podcast Host, Andrew Stotz, Ph.D., CFA, is also the CEO of A. Stotz Investment Research and A. Stotz Academy, which helps people create, grow, measure, and protect their wealth.