ASIAN OIL BOOMERANG
Plunging oil prices have sparked a big rally in Asian government bond markets as lower fuel costs cut inflation expectations, but the rally could be built on shallow foundations as monetary policymakers remain out of step with tumbling bond yields.
The price of oil CLc1, of which Asia is a net importer, has halved in less than six months, driving bond yields down across the region, from India to South Korea, as markets anticipate looser monetary policy to accommodate the resulting disinflation.
The imminence of further monetary easing in Europe and Japan builds a strong case for bond yields to drop further.
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