SOUTH KOREA: 1-Yr KRW Swaps Continue to Price in Rate Hikes (amended)
- The January 15 Bank of Korea meeting saw it hold its benchmark interest rate steady at 2.50% for the fifth consecutive meeting, a decision that saw some short term upward pressure on Korean Treasury bond yields. This move, coupled with the removal of previous guidance on potential rate cuts, signaled a more hawkish stance and an likely end to the easing cycle, pushing the 10-year yield to its highest in more than a year.
- At year end, the remnants of rate cuts remained priced in for early 2026 but they are now gone. Over the next 1, 2 and 3 months there is a cumulative 5bps of hikes priced into our swaps model and over the next 12 months +66bps (from +53bps last week) of increases all of focused in Q3/Q4
- The MIPR function on BBG has +42bps of increases over a 12 month period .
- Data releases for February so far have been strong with exports strong, and CPI within target. The government continues to talk about further fiscal support which could put upward pressure on yields, something they and the BOK have been seeking to avoid.
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JGBS: At Session Cheaps At Lunch
At the Tokyo lunch break, after the extended NY break, JGB futures are weaker and at a fresh cycle low, -41 compared to settlement levels (see chart).
- Cash US tsys are slightly richer in today's Asia-Pac session after Friday's modest bear-steepener. Focus in the first two full weeks of the year will be on nonfarm payrolls (Friday) and CPI reports (Jan 13) for December, with those two key reports back on their original schedules having been prioritized by the BLS. Private sector reports meanwhile are highlighted by ISM manufacturing and services reports Jan 5 and 7. No scheduled Fed speakers today.
- Cash JGBs are 1-6bps cheaper across benchmarks, led by the futures-linked 7-year. The benchmark 10-year yield is 5.4bps higher at 2.12%, a fresh cycle high.
- (Bloomberg) " Long-term JGB yields may continue to face upward pressure due to concerns about the Bank of Japan's efforts to rein in inflation and the government's "reflationary" policy intentions.”
- Swap rates are 2-5bps higher, with a steepener curve.
Source: Bloomberg Finance LP
US TSY FLOWS: BLOCK BUY FVH6
BUY 3800 of FVH6 traded at 109-06 1/4, post-time 12:50:17 AEDT (DV01 $166,268). The contract is currently trading at 109-06, +0-00 3/4 from closing levels.
CHINA PRESS: Beijing Calls For Improving Expectation On Real Estate
Authorities should maintain strong policy support to stabilise the real estate market, ensuring measures meet market expectations and avoid a piecemeal approach, while coordinating with other macro policies and preparing for potential developer bankruptcies and restructurings, according to a commentary published by the party-run magazine Qiushi. The magazine also said it was necessary to strengthen price monitoring and improve expert interpretation of sensitive indicators, including real estate investment, the number of foreclosed properties, and developers’ bankruptcies and debt restructurings, in order to better guide market expectations.
