(Bloomberg) -- Emerging Asia bonds are set to benefit more than their global peers from any rally in Treasuries as the region’s debt enjoys tighter spreads over their US counterparts.

South Korean 10-year bonds offer a spread of around 100 basis points below similar-dated Treasuries, which is 2.1 standard deviations below the five-year average, according to analysis by Bloomberg. Calculations for Indian, Malaysian and Chinese debt also show narrow spreads while those for bonds in Hungary, Colombia, Poland and Mexico signal relatively wider spreads. 

While Treasury yields have risen recently, they are still set for a decline in May as the Federal Reserve appears to have set the bar high for further rate hikes. Most policymakers in the region are waiting for the Fed to cut borrowing costs before embarking on their easing path, with slowing growth and inflation in some of these economies giving them room to act sooner.

Emerging Asia bond spreads are narrow relative to Treasuries as the region has not faced “the same level of price pressures as the US,” said Eugene Leow, a Singapore-based senior rates strategist at DBS Group Holdings. “When the Fed finally re-calibrates lower, the external constraint on EM Asia central banks should turn less binding, allowing rate cuts to be delivered if needed.”

Ten-year Treasury yields have fallen seven basis points in May, while an average of the region’s debt of the same tenure has slipped by a mean of 11 basis points, according to data compiled by Bloomberg. By comparison, Europe, Middle East and Africa’s (EMEA) 10-year bond yields declined by only four basis points, while Latin American notes saw a small gain.

The drop in US yields, as a proxy for the dollar cost of funding, has made investments into emerging-market assets more alluring. As a result, global funds poured $560 million into Thai bonds in May, the first foreign inflow in six months, while Indonesia bonds have seen the first net foreign inflow this year to the tune of $944 million.  

Treasury yields have risen this week amid US fiscal deficit concerns, which showed up in the soft demand at the seven-year Treasury sale on Wednesday, as well as stronger US consumer confidence data.

Nonetheless, any signs of a dovish pivot by the Fed at its FOMC meeting in mid-June may allow regional policymakers to begin easing rates. April inflation in Malaysia, Indonesia, the Philippines, South Korea and Taiwan all came in below economist estimates, signaling that disinflation is becoming more widespread in the region and easing pressure on local yields.

(Updates moves in US yields this week in paragraph three and paragraph seven)

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