BOK: Further Tightening Inbound
The BoK statement confirmed the need for continued rate hikes, although it reiterated a data-dependent stance when it came to the degree of further tightening required, focused on the inflation & growth mix, in addition to financial stability issues including international capital flows, monetary policy in the international arena and geopolitical risks (these factors were all flagged in August).
- The Bank pointed to a ’22 GDP growth path that is generally in line with its previously outlined 2.6% projection, while noting that the inflation trajectory largely matches its existing ’22 CPI forecast of 5.2%, albeit with upside risks noted and a reaffirmation of the idea that inflation will remain in the high 5-6% range for a “considerable time,” as the “impact of the rising Korean won to US dollar exchange rate acts as additional inflationary pressure.”
- Further out, the Bank flagged ’23 GDP growth that was somewhat below its prior forecast (2.1%)
- The Bank also noted that house prices have fallen, household debt has decreased and export growth has slowed.
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US SWAPS: J.P.Morgan Rejig 3-Year Swap Spread Widener Play
J.P.Morgan “remain biased in favor of spread wideners in the 3-Year sector, but also recommend taking advantage of short term relative value moves to switch into issues that are closer to the 3-Year sector and offer better relative value.”
- They have therefore unwound wideners anchored in the 2.625% Apr 15 2025s and initiated wideners anchored in the 0.25% Jul 31 2025s.
AUSSIE BONDS: Rolls Notably Boost Volume, Futures Little Changed
YM & XM have dealt either side of their respective overnight levels, failing to challenge their respective post-Sydney peaks, with volume boosted by quarterly rolls (which account for ~90% of YM & XM activity seen since Friday’s Sydney settlement).
- Cash ACGBs run 2.0-3.0bp richer across the curve, while YM is +2.8 and XM is +2.5, with both contracts little changed from their respective overnight closing levels. EFPs are little changed, while Bills run flat to 6 ticks richer through the reds.
BOJ: Fixed Rate Operation Offer
The BoJ offers to buy an unlimited amount of 10-Year JGBs at a fixed rate of 0.25%.
