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KRW Rates - Although BOK hike was in line with consensus, there was a large upward move in IRS rates yesterday. Some of Governor Rhee's comments on the forward policy rate path, range for neutral rates, when will BOK turn more data-dependent, stickiness of inflation in the 5-6% range etc, suggest that the hike cycle could be longer and terminal policy rates higher than previously expected. The 18-20bps parallel-shift higher in IRS curve yesterday suggest that swap markets added hikes to the priced policy path, rather than frontloading. Priced terminal policy rate jumped from 3.25% to 3.50%. In terms of strategy, we think that hike pricing could get overextended and we would fade if priced terminal rates get to 3.75%. Regional swaps are in late-cycle pricing mode and there are also emerging signs of slowing in regional exports and some of Korea's domestic indicators. Therefore, any upward move in swap rates are likely to be capped (not expected to be large).
CNY Rates - State Council announced a CNY1tn stimulus package largely focused on infrastructure spending. Local governments will also be allocated CNY500bn of special bond issuance from previously unused quotas. We think that as more and more support measures get announced, though they may not be sufficient to significant lift China's growth outlook, these support measures should arrest any further downward pressures/momentum in IRS rates and IRS rates could grind slightly higher. For the next leg of 10-20bps drop in IRS rates, we need either another round of MLF/OMO/RRR rate cut or another batch of poor economic data.
IDR Rates - Compression of 5Y-10Y yield spreads took a pause yesterday. Purchase of longer-term bond seems to have begun. There was Bloomberg reporting that BI bought eight series of bonds of 5Y-8Y maturity via private placement on 24 August.
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