Asian Rates Enter a Stabilization Phase After the Rebound, Nomura Prefers Relative Value Strategies

Overview

This is a Nomura Asia rates strategy report focused on assessing the impact of easing US-Iran tensions, declining oil prices, FOMC pricing, and local Asian growth and inflation data on Asia (ex-Japan) rates markets. The report argues that after the recent rebound in rates, markets may stabilize, with limited room for further one-way declines, while the fact that oil prices are no longer at extreme highs also reduces the tail risk of a sharp rise in rates.

Core views

The core views are: Korea rates still have room to outperform on a relative basis, especially versus Taiwan; India rates are near technical support, and although foreign buying has driven an IGB rebound that is unfavorable for pay positions, growth and inflation risks mean the pay view can still be maintained; in Thailand, the front end should still retain some premium and long-end supply pressure is manageable, so 2s10s flattening remains attractive; in Hong Kong, a neutral short-term stance is maintained because HKD liquidity and HIBOR are already partly priced in, but in the medium term there may be an opportunity to re-enter long-end IRS pay positions.

Analysis framework

The report uses a combination of macro policy pricing, geopolitical risk, oil prices, technical levels, supply-demand dynamics, and curve relative value analysis: it first assesses the room for the overall rebound in Asian rates, then compares policy expectations, growth and inflation, bond supply, and liquidity constraints across Korea, Taiwan, India, Thailand, and Hong Kong.

Methodology notes

• Fixed Income StrategyRelative Value Trading

  Receive Korea vs Taiwan

  By comparing policy pricing and fundamental differences in mid-curve rates between Korea and Taiwan, the report seeks opportunities for cross-market spread convergence rather than simply betting on the direction of overall Asian rates.

• Macro Rates AnalysisPolicy Expectations and Growth-Inflation Framework

  Central bank pricing, growth, and inflation constraints

  The report compares policy expectations for the BOK, CBC, RBI, and BOT, as well as the impact of industrial production, GDP, inflation, and oil prices on rates pricing.

• Technical Analysis200-Day Moving Average Support

  India 5y NDOIS and 10y IGB near the 200-day moving average

  The report argues that India rates are near technical support levels that have held since November last year, so room for further declines may be limited.

• Supply, Demand, and LiquidityBond Supply and Money Market Liquidity Analysis

  Thailand bond supply, Hong Kong Aggregate Balance and HIBOR

  The report uses Thailand's planned July-September bond supply and Hong Kong's Aggregate Balance and HIBOR/IRS spreads to assess relative opportunities at the front and long ends.

• Risk Premium AnalysisGeopolitical and Oil Price Premium

  Hormuz shipping and oil price tail risk

  The report argues that the pullback in oil prices reduces the tail risk of sharply higher rates, but commercial vessel traffic through the Strait of Hormuz is still less than half of pre-war levels, so the geopolitical premium may continue to limit further declines in rates.

Asset mapping & comparison

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

• Asia (ex-Japan) rates

  Overall mild bias toward paying rates, but with greater emphasis on relative value

  Strengths

  Oil prices have retreated from extreme highs, so the right-tail risk of sharply higher rates is lower than when oil was above $100/bbl.

  Weaknesses

  Further downside in rates is constrained by a hawkish FOMC, the risk of strong NFP data, and geopolitical premium.

  Comparison

  Compared with outright duration trades, cross-market and curve strategies offer better risk-reward.

  Risks

  If US data weakens significantly or geopolitical risks fade quickly, rates may continue to decline, hurting a pay bias.

• Korea Sep-5y rates relative to Taiwan

  High-conviction receive Korea, relatively bearish on Taiwan rates performance

  Strengths

  Korea's growth is K-shaped and industrial production is weaker than expected; if the BOK hikes in line with market pricing, the curve could flatten meaningfully and push down mid-curve forward rates.

  Weaknesses

  Korea rates are no longer at extreme levels, and part of the opportunity has already been repaired by the market.

  Comparison

  Taiwan rates have already returned to early-year levels; if growth is strong and inflation stays around 2%, the CBC may be seen as behind the curve, making Taiwan more vulnerable relative to Korea.

  Risks

  If Korea data improves, the BOK turns more hawkish, or Taiwan growth and inflation cool, the receive Korea versus Taiwan trade could suffer.

• India IGB, 5y NDOIS, and Sep-5y pay

  Maintain pay view but with medium conviction

  Strengths

  5y NDOIS and 10y IGB are near 200-day moving average support, while inflation risk and upside risk to FY27 GDP support a rebound in rates.

  Weaknesses

  The continued strong rebound in IGBs, driven by foreign buying, is a direct headwind to pay positions.

  Comparison

  The report switches the tenor from Sep-2y to Sep-5y, viewing the risk-reward in the belly as more appropriate.

  Risks

  If foreign investors continue large-scale buying, oil prices fall further, or inflation risks fade, India rates may continue to decline and trigger the stop-loss.

• Thailand 2s10s curve

  Maintain 2s10s flattener

  Strengths

  The BOT meeting was neutral but not very dovish, so the front end should retain some premium; long-end bond supply for July-September looks reasonable.

  Weaknesses

  If the market starts pricing in easing again or the economy weakens, the front-end premium may decline.

  Comparison

  Compared with outright pay or receive positions, curve flattening better expresses the combined view of front-end premium and manageable long-end supply.

  Risks

  If large-scale issuance related to the emergency decree materializes, or the BOT turns clearly dovish, the flattening thesis could break down.

• Hong Kong IRS and HKD bonds

  Neutral in the short term, watching for a chance to re-enter long-end pay in the medium term

  Strengths

  In the medium term, issuance of HKD bonds by non-financial corporates may rise structurally, financing demand for long-term projects such as the Northern Metropolis may increase, and subsidies to quasi-government entities may decline due to fiscal constraints.

  Weaknesses

  The market has already partly priced in tighter liquidity in the short term, with 6mfwd6m HK IRS already about 70bp above 3m HIBOR.

  Comparison

  The front end is more sensitive to USD/HKD and the Aggregate Balance, while the long end is better suited for waiting for pay opportunities tied to structural supply themes.

  Risks

  If USD/HKD reaches 7.85 and causes further liquidity withdrawal, front-end rates could rise quickly; if bond issuance demand falls short of expectations, the medium-term long-end pay thesis will weaken.

Key data

• 5-year Asian swap ratesClose to pre-war levels or only about ~10bp higherRates rebounded healthily after the temporary US-Iran agreement, and oil prices have almost returned to late-February levels.
• Geopolitical risk indicatorDaily commercial shipping traffic through the Strait of Hormuz remains below half of pre-war levelsThis factor may allow part of the geopolitical risk premium to persist.
• Korea versus Taiwan tradeReceive Sep-5y Korea vs Taiwan, conviction 4/5, target 150bpThe target horizon is end-August 2026; the Korea market is still close to pricing in five rate hikes over the next 18 months.
• Korea policy pricingThe market is close to pricing in five rate hikes over the next 18 monthsNomura believes that if the BOK actually hikes by that much, the curve should flatten meaningfully and rates such as 2yfwd3y could instead decline.
• Taiwan rates backdropAlready back to the level at the start of the yearIf growth remains strong and inflation stays around 2%, the CBC may be seen by the market as behind the curve.
• India growth forecastFY27 GDP growth forecast is 6.6%, with upside riskIndustrial production remains stable, and together with inflation risks such as El Nino, supports maintaining the pay view.
• India trade adjustmentSwitch from Sep-2y to Sep-5y; current levels are 5.96% and 6.20%, respectivelyMaintain the pay stance, conviction 3/5, with a 10bp stop-loss.
• Thailand tradeMaintain 2s10s flattener, conviction 3/5The BOT meeting was neutral but not very dovish, and the upward revision to the 2026 GDP growth forecast exceeded market expectations.
• Thailand bond supplyPlanned supply for July-September 2026 does not exceed THB345.56bnThe supply size announced by the PDMO is considered reasonable, and the risk of large-scale issuance from the emergency decree has not materialized.
• Hong Kong liquidityAggregate Balance around HKD54bn; 6mfwd6m HK IRS about 70bp above 3m HIBORIf USD/HKD reaches 7.85 and leads to further liquidity withdrawal, HIBOR and front-end HK swap rates will rise, but part of this is already priced in.

Impact & implications

The investment implication is that the Asian rates market has recovered from extreme geopolitical and oil-price shocks, and the risk-reward of chasing one-way declines in rates has deteriorated. A more appropriate positioning approach is to focus on relative value around policy pricing and curve structures across different markets: favor Korea relative to Taiwan, maintain lower-conviction pay or curve trades in India and Thailand, and wait for a medium-term entry point to re-enter long-end pay positions in Hong Kong.

Risks

• Strong NFP data or a renewed hawkish FOMC could push up global rates and limit the continued rebound in Asian rates.
• Shipping through the Strait of Hormuz has still not recovered to pre-war levels; if geopolitical conflict or oil prices rise again, inflation and risk premia may climb again.
• If India IGBs continue to be driven by strong foreign buying, pay positions may come under pressure and hit the 10bp stop-loss.
• The Korea versus Taiwan trade depends on divergence in policy, growth, and inflation between the two markets; if that divergence narrows, the 150bp target may be difficult to achieve.
• If HKD liquidity tightens rapidly in Hong Kong, HIBOR and front-end HK swaps may rise, but trade entry points and tenor selection need to be handled carefully.
• If Thailand sees above-expected bond supply or a shift in BOT policy, the 2s10s flattener may fail.

What to watch

• US NFP, Fedspeak, and market repricing of the FOMC path.
• Oil price trends and whether commercial shipping through the Strait of Hormuz recovers.
• Korea industrial production, BOK policy signals, and changes in mid-curve forward rates such as 2yfwd3y.
• Whether Taiwan growth and inflation remain strong, and whether the CBC is seen by the market as behind the curve.
• Foreign buying of India IGBs, FCNR effects, El Nino inflation risks, and whether 5y NDOIS and 10y IGB hold their 200-day moving averages.
• BOT messaging, changes in the 2026 GDP forecast, the PDMO supply plan, and issuance risks related to the emergency decree.
• Whether USD/HKD reaches 7.85, Hong Kong's Aggregate Balance, HIBOR fixing, and the spread of 6mfwd6m HK IRS versus 3m HIBOR.