Despite the sharp focus on US-China tensions in recent months. DBS rates strategists Eugene Low and Duncan Tan see this sabre-rattling generating more heat than light for interest and FX rates. Key indicators do not suggest an impending sell-off, with the pair expecting Asian interest rates to remain stable despite potential geopolitical escalation before US Presidential Elections in November. Key pillars of interest rate stability, they say, remain intact. 

Asian central banks, claim Low and Tan, are likely to continue supporting government budget financing and smoothen rates volatility against the context of relatively static policy rates.  Developed market central banks are also expected to keep policy settings accommodative for an extended period, suppressing rate volatility in the process. An environment conducive for carry is therefore likely to arise. 

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