Rethinking US exceptionalism? The US economy has proven to be an outperformer in recent years, but a rethink may be at hand. From a rates perspective, the strength of the US economy has allowed US Treasury yields to be elevated relative to the other large economies. As dynamics within the large economies shift, it leads to a cyclically smaller yield premium for the US, and the balance of risks would be tilted the other way. With the outlook of other major economies improving and that of the US likely to face challenges, we could see the yield premium of USTs erode over peers in the coming months.

• US exceptionalism is being questioned, driving US yields lower compared to counterparts in Europe and Japan
• EUR and JPY rates face sustained pressure from rising fiscal needs and sticky inflation respectively
• An easing bias is seen across much of Asia as inflation worries ebb; currency weakness may constraint room for rate cuts
• Despite the flattening of the SGDNEER slope in January, SGD rates are held low by flush liquidity
• Upside to CGB yields may be limited despite improved sentiment as the PBOC maintains support on the economy

Figure 1: Further fine-tuning across the G3

Source: Bloomberg, DBS