(May 13): Emerging Asian bonds may have less room to rally compared to their global peers, as central banks in the region are unlikely to embark on aggressive interest-rate cuts.

Inflation-adjusted yields in emerging Asian nations are the lowest globally, relative to their historical performance, due to slower disinflation, as well as fewer hikes post the pandemic. That may act as a disincentive for the region’s central banks to ease rates sooner rather than later, as Asian policymakers have been facing weaker local currencies too, even when the market begins to price a pivot from the Federal Reserve.

Central banks in Asia remain vigilant against inflation and currency pressure, with authorities in Taiwan and Indonesia delivering surprise rate hikes in the past two months. In contrast, officials in Latin America have already begun the easing cycle, including in Mexico and Brazil. Inflation data due in India on Monday will give investors further clues on the monetary policy outlook in Asia.

The “bottom line for local debt investors is that the overall EM risk environment has moderately improved”, which will benefit high-yielding markets such as Brazil and Mexico, said Jon Harrison, managing director for emerging-market macro strategy at GlobalData TS Lombard in London.

Mexico’s 10-year nominal yield adjusted for inflation is around 500 basis points, which is 1.6 standard deviations above the five-year mean. A higher real yield z-score signals that the bond has a higher real yield premium now, compared to its historical performance.

The similar z-score gauge for Indonesia is near zero, while those for Malaysia, South Korea and China are all below one.

Latin America continues to top the scales for projected real yields in emerging markets, with Mexico, Brazil and Colombia leading, Citigroup Inc strategist Bhumika Gupta wrote in a note last week.