Nomura is turning more bullish on South Korean bonds, raising its conviction level on receiving a 5-year Korea non-deliverable interest-rate swap position starting in 2027.
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5-year NDIRS rate is set to fall to 3.95% from current 4.19%, strategists Albert Leung and Clair Gao write in note
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The latest macro data reinforced the view of a K-shaped economy: exports beat expectations, while industrial production struggled, growth in Seoul apartment prices moderated, and core CPI slowed
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Overall, the data reduce the tail risk of an October BOK hike with FX now less of a concern and markets pricing only about a 20% probability of an October Fed rate increase
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Korea’s government is set to keep reducing bond issuance and conducting larger and higher-frequency debt buybacks using excess tax revenues into next year
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Korea’s yield curve remains too steep and is likely to gradually flatten as the BOK makes further progress on the hiking cycle
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Still, the developed-market rates environment remains weak, and some recoupling of Korea rates toward the US after their recent outperformance can’t be ruled out