Nomura: Asian rates are better suited to selective curve steepeners

Overview

This is a Nomura Global Markets report on Asia ex-Japan rates strategy, with the core message shifting from a previously cautious stance to a more selective allocation to Asian rates opportunities. The report argues that, given energy-price shocks are mainly seen as supply shocks, most Asian central banks may not deliver the hikes already priced in; however, since outright receiver positions can be volatile, curve steepeners with improving risk/reward deserve more attention right now.

Core views

The key views are: first, maintain the India 6m-5y steepener, but reduce additional receiving in 6m OIS and keep only an equal-weight steepener position; second, initiate a Hong Kong Jun-2s10s IRS steepener with a 40bp target, a current level of 23bp, and a confidence rating of 3/5; third, in Korea and Taiwan, where the probability of rate cuts is low, the report has weaker conviction on steepeners and instead prefers receiver value further out on the curve.

Analysis framework

The report uses a rates strategy framework that combines macro fundamentals, market pricing, curve shape, carry cost, and risk sentiment. For India, it focuses on fiscal risks, the impact of energy and fertilizer prices on the deficit, potential offset from RBI dividends, and market pricing for around 50bp of tightening this year; for Hong Kong, it looks at the USD rates curve, HIBOR fixings, the rate environment before USD/HKD approaches 7.85, loan growth, and local macro improvement; for Korea and Taiwan, it combines ceasefire headlines, market rate levels, green bond issuance, and CTA paying-position changes to judge trade preferences.

Methodology notes

• Fixed Income StrategyCurve steepener trade

  steepener

  By betting on front-end rates falling relative to the long end, or the long end rising relative to the front end, the trade seeks returns; the report uses it mainly for India 6m-5y and Hong Kong 2s10s curves.

• Macro rates analysisCentral bank pricing vs policy expectations

  policy pricing versus expected central bank action

  Compares the rate hikes already priced in by the market with the research team's view of actual central bank action to identify receiver or curve-trading opportunities.

• Trading risk/rewardCarry and target-level assessment

  carry and target level assessment

  In the Hong Kong trade, the report notes better carry relative to the U.S. curve and gives a 40bp target versus the current 23bp level.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• India 6m-5y rates steepener

  Maintain trade

  Strengths

  Rising fiscal risk, the government's absorption of energy and fertilizer price pressures, and sustained high capital expenditure all support the steepening logic.

  Weaknesses

  The front end has already partly normalized, and the market prices in about 50bp of tightening, reducing the risk/reward of receiving extra 6m OIS.

  Comparison

  Compared with outright front-end receiving, the report adjusts to keeping an equal-weight steepener position.

  Risks

  If fiscal pressure eases, RBI dividends materially offset the deficit, or the market reasserts a hike bias, the trade could come under pressure.

• Hong Kong Jun-2s10s IRS steepener

  New trade

  Strengths

  With a 40bp target versus the current 23bp level, if global risk sentiment stays stable, the U.S. curve could steepen again; relative to the U.S., Hong Kong steepening has better carry.

  Weaknesses

  The trade depends on stable risk sentiment, HIBOR fixing staying in place, and continued local macro improvement.

  Comparison

  The report believes Hong Kong steepening offers better carry than the U.S. curve.

  Risks

  If USD/HKD moves rapidly toward 7.85, HIBOR rises, or loan growth and local macro improvement fall short of expectations, performance could weaken.

• Korea receive 2yfwd2y

  Prefer re-entry

  Strengths

  After taking profit on the receive position following ceasefire headlines two weeks ago, rates later moved back near that level, so we still prefer re-entry.

  Weaknesses

  Korea is classified as a low-probability cut market, so the steepener case is not convincing.

  Comparison

  Compared with steepeners, the report prefers receiver value further out on the curve.

  Risks

  If the market reprices hikes or risk appetite improves and pushes yields higher, the receive position could come under pressure.

• Taiwan Jun-3s10s flattener / 10y yield receive

  Adjusted to DV01-neutral

  Strengths

  Weak green bond issuance supports some downside in 10y Taiwan yields.

  Weaknesses

  The front end has turned more neutral, the market has repriced in less than 20bp of hikes this year, and CTA paying positions may already have been significantly reduced.

  Comparison

  The report removes the extra 10y receive leg and turns the 3s10s flattener to DV01-neutral.

  Risks

  If long-end supply recovers or the front end prices in more hikes again, the Taiwan curve trade could be unfavorable.

Key data

• Report date2026-04-15Global Markets Research publication date.
• India tradeMaintain the 6m-5y steepenerReduce additional receiving in 6m OIS and keep the equal-weight steepener; current 6m OIS is 5.57.
• India market pricingAbout 50bp of tighteningThe market prices in about two hikes by end-2026, or one hike plus some liquidity tightening.
• Hong Kong tradeInitiate a Jun-2s10s IRS steepenerTarget 40bp, current 23bp, confidence rating 3/5.
• Hong Kong front-end conditions1y IRS is about 30bp above fixingThe report thinks HIBOR fixings may stay around current levels before USD/HKD approaches 7.85.
• Taiwan rates3y at 1.97%, 10y at 2.395%Convert the Jun-3s10s flattener to DV01-neutral and remove the extra receive leg in 10y.
• Fixed-income recommendation horizonTactical usually less than three months; strategic usually more than three monthsFrom the fixed-income valuation methodology disclosure in the report.

Impact & implications

The investment implication is that the report is not broadly bullish on Asian rates, but rather recommends prioritizing curve structures with more suitable shape, better carry, and clearer fundamental support when outright receiver trades are volatile. The India trade reflects the impact of fiscal pressure on curve shape, while the Hong Kong trade is driven jointly by global risk sentiment, the USD curve, local loan growth, and the Hong Kong dollar exchange-rate mechanism. The Korea and Taiwan sections suggest that in markets with low cut probability, steepeners may not be the best choice, and receiver positions further out on the curve may be more valuable.

Risks

• If energy-price shocks create more persistent inflation pressure, Asian central banks could turn more hawkish than the report expects.
• Outright receiver trades can be volatile, and curve trades are also affected by global risk sentiment and the USD rates curve.
• If India's fiscal pressure is offset by larger-than-expected RBI dividends or better revenue, the steepener logic could weaken.
• The Hong Kong trade depends on HIBOR, USD/HKD, loan growth, and local macro improvement; any reversal in these variables could hurt performance.
• Fixed-income recommendations can be reviewed as market conditions change, and the prices and yields in the report may not match executable levels.

What to watch

• The gap between actual Asian central bank hike or cut paths and market pricing.
• The impact of energy and fertilizer prices on India's fiscal deficit, and the size of RBI dividends.
• Changes in India's 6m OIS and 6m-5y curve.
• Progress in Hong Kong Jun-2s10s IRS moving from 23bp toward the 40bp target.
• Whether HIBOR fixings and USD/HKD approach 7.85, and whether Hong Kong loan growth rebounds.
• Whether Korea 2yfwd2y rates return to a level suitable for re-entry.
• Taiwan green bond issuance, 10y yield moves, and CTA paying-position changes.