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Parallels between the current Asian bond market sell-off and the bond crash in 1994 that followed 300 basis points of rate hikes in the US are overblown, according to commentators.
Asian bond markets are likely to perform worse when the US Federal Reserve's (Fed) quantitative easing (QE) programme comes to an end, but metrics in the region are much stronger now than they were during the bond crash in 1994, rendering comparisons between the two inappropriate, say economists.
The region's markets have seen yields bounce outwards after the Fed discussed potentially ending its QE programme by the end of 2014 on June 19. The reaction may look extreme, but the market fears are not unfounded.
In 1994 the Fed hiked rates by 300 basis points (bp) in a year, which pushed up yields on Asian sovereign bonds. The strengthening US dollar eventually made exchange-rate pegs in the region unsustainable, and ultimately this proved to be one of the main causes of the Asian financial crisis in 1997 to 1998.
The parallels to today's sell-off have not gone unnoticed. South Korean central bank governor Kim Choong Soo said in a recent interview with the Wall Street Journal that he fears the ghost of 1994. Others, including Goldman...