SINGAPORE: Bonds from India and the Philippines look to be most vulnerable to further economic slowdowns in Asia as the threat from a new coronavirus variant revives virus resurgence fears.

       The two nations have the steepest yield curves among seven Asian countries, which means any additional fiscal stimulus would come at a higher cost for the governments.

       Their scope for monetary easing would also be limited by higher inflation, with lower vaccination rates compounding the stress on their economies.

       News on the Omicron variant roiled global markets this week as travel bans and doubts about the effectiveness of existing vaccines on the new strain weakened economic recovery bets.

       Sentiment stabilised as South African health experts, including the doctor who sounded an alarm on the variant, signalled symptoms linked to the strain have been mild so far. Still, investors are watching if results from the World Health Organization’s research on Omicron reveal worrying signs.

       “In the event Omicron turns out worse than the Delta strain, India and the Philippines may see some deterioration of the fiscal and debt outlook due to weaker government revenues and the need for extended stimulus in 2022,” according to Duncan Tan, a strategist at DBS Bank Ltd in Singapore.

       No known cases of Omicron have been detected in India and the Philippines so far.

       The yield spread between two- and 10-year government bonds from India and the Philippines is the widest compared to the five-year average.

       That’s because India’s borrowing programme for the current fiscal year ending March 2022 is already near a record high, while the Philippine budget deficit is at an all-time high this year.

       The pressure on Indian bonds may be exacerbated as the central bank ended its announced bond purchase programme in the quarter ended September. ― Bloomberg