Asia rates may stabilize after the recent rise, with Korea versus Taiwan still the highest-conviction trade

Overview

This report presents Nomura’s Asia rates strategy view. Its core judgment is that Asia ex-Japan rates have already risen notably recently following easing Middle East tensions and lower oil prices, and further downside may now be limited. The report believes the June FOMC was interpreted by the market as slightly hawkish, and commercial vessel traffic through the Strait of Hormuz remains below pre-war levels, suggesting geopolitical risk premia may not have fully faded. Therefore, the risk-reward of outright long duration positions has declined, while relative value trades are more attractive.

Core views

The report is most constructive on Korea rates relative to Taiwan and continues to recommend receiving Korea Sep-5y versus Taiwan. The rationale is that the Korean market is still pricing in nearly five rate hikes over the next 18 months, while weaker industrial production data reinforces K-shaped growth pressure. If the Bank of Korea hikes aggressively as the market expects, the curve should flatten meaningfully, and forward rates in the belly could still decline. In Taiwan, rates have returned to levels seen at the start of the year; if growth remains strong and inflation stays around 2%, the central bank may be seen as behind the curve. In India, strong foreign buying has driven IGBs higher, creating pressure on the pay view, but 5-year NDOIS and 10-year IGBs are near the 200-day moving average support that has held since last November, so the report maintains the pay stance and switches to Sep-5y. In Thailand, the BOT meeting was neutral but not very dovish, so some premium should remain at the front end. In Hong Kong, the short-term view is neutral, but if corporate HKD bond issuance rises structurally in the future, the better medium-term trade may be to re-enter paying the long end.

Analysis framework

The report combines macro policy pricing, geopolitics and oil prices, technical levels, fund flows, bond supply, and curve shape in forming its rates strategy views. Directionally, it assesses how much room remains for the recent rise in Asian rates to continue; from a trading perspective, it emphasizes relative value across markets, tenor switches, and curve trades rather than unconditional directional bets in a single market.

Methodology notes

• Macro rates strategyRelative value rates trading

  Receive Korea Sep-5y versus Taiwan

  By comparing policy pricing, growth, and inflation backgrounds in Korea and Taiwan, the report concludes that Korea’s belly rates still have relative downside potential, while Taiwan rates are more likely to rebound against a backdrop of strong growth and around 2% inflation.

• Technical analysisMoving average support

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

  The report treats the 200-day moving average as a key technical support level after the recent rise in India rates, viewing it as effective since last November; it therefore maintains the pay view but controls risk with a stop-loss.

• Curve strategy2s10s flattener

  Thailand 2-year versus 10-year curve flattening

  The report believes the BOT has not turned overly dovish, so some premium should remain at the front end, while long-end bond supply pressure is limited, making a Thailand curve flattener more attractive.

Asset mapping & comparison

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

• Korea rates (Sep-5y, versus Taiwan)

  Recommended to receive Korea and hold a high-conviction relative value position versus Taiwan.

  Strengths

  Korean industrial production was weaker than expected, reinforcing K-shaped growth pressure; the market is still pricing in nearly five rate hikes over the next 18 months, and if actual hiking proves excessive, the curve should flatten significantly and belly forward rates could still decline.

  Weaknesses

  Korea rates are no longer at extremely elevated levels, so the trade opportunity is smaller than before.

  Comparison

  Compared with Taiwan, Korea’s growth pressure and policy pricing provide stronger support for relative rate downside.

  Risks

  If Korea data strengthens again, inflation pressure rises, or the Bank of Korea turns more hawkish, the receive-Korea leg could come under pressure.

• Taiwan rates

  As the other side of the Korea relative value trade, the report is inclined to believe Taiwan rates are more likely to rebound.

  Strengths

  If Taiwan growth remains strong and inflation stays around 2%, the central bank may be seen as behind the curve, supporting higher rates.

  Weaknesses

  Taiwan rates have already returned to levels seen at the start of the year, so some of the rebound expectation may already be priced in.

  Comparison

  Relative to Korea, Taiwan’s macro backdrop is less favorable for continuing to receive rates.

  Risks

  If Taiwan growth slows or inflation eases, the room for Taiwan rates to rebound may be limited.

• India rates (IGB, 5-year NDOIS, Sep-5y)

  Maintain the pay view and switch the tenor from Sep-2y to Sep-5y.

  Strengths

  Industrial activity is stable, and Nomura’s economics team believes there is upside risk to its FY27 GDP growth forecast of 6.6%; inflation risks such as El Nino remain.

  Weaknesses

  The strong rally in IGBs driven by foreign buying is a direct headwind to the pay position.

  Comparison

  Compared with continuing to hold Sep-2y, Sep-5y is considered better suited to the current technical setup and risk control.

  Risks

  If foreign investors continue buying aggressively, oil prices fall further, or rates break below the 200-day moving average support, the pay trade may hit its stop-loss.

• Thailand rates curve (2s10s)

  Maintain the 2s10s flattener trade with a conviction level of 3/5.

  Strengths

  The BOT meeting was neutral but not very dovish, so some premium should remain at the front end; bond supply from July to September is reasonable, and the risk of large-scale issuance under the emergency decree has not materialized.

  Weaknesses

  Trade conviction is only medium, and it depends on both front-end premium remaining and long-end supply staying moderate.

  Comparison

  Compared with outright paying or receiving, a flattener better expresses the combined view of retained front-end premium and relative long-end stability.

  Risks

  If the BOT turns more dovish, long-end supply rises unexpectedly, or fiscal financing pressure increases, the flattener trade could suffer.

• Hong Kong rates (HK IRS)

  Neutral in the short term; more inclined to re-enter paying the long end of HK IRS in the medium term.

  Strengths

  If USD/HKD reaches 7.85 and causes the aggregate balance to decline further, HIBOR and front-end HKD swap rates could rise; in the medium term, non-financial corporate HKD bond issuance may rise structurally, supporting the long-end pay thesis.

  Weaknesses

  Some front-end upside is already priced in—for example, 6mfwd6m HK IRS is about 70bp above 3m HIBOR; the report had also taken profit too early on a 10-year IRS pay position in early June.

  Comparison

  The short term is more constrained by FX and liquidity, while the medium term is more affected by long-term project financing and reduced subsidies for quasi-government entities.

  Risks

  If HKD liquidity pressure eases, bond issuance falls short of expectations, or fiscal constraints are less severe than expected, the long-end pay opportunity may be delayed.

Key data

• 5-year Asian swap ratesNear pre-war levels or only about 10bp higherAfter the recent rise, most 5-year Asian swap rates have already fallen back significantly, and further downside is considered more limited.
• Korea versus Taiwan tradeReceive Korea Sep-5y versus Taiwan; target 150bp; by end-August; conviction 4/5The report continues to list this trade as a high-conviction relative value recommendation.
• Korea market rate hike pricingNearly five rate hikes over the next 18 monthsThe report believes this pricing is in tension with Korea’s K-shaped growth pressure.
• India trade adjustmentSwitch from Sep-2y to Sep-5y; current levels around 5.96% and 6.20%; conviction 3/5; stop-loss 10bpThe report acknowledges that the strong rally in IGBs driven by foreign buying is unfavorable for the pay position, but believes the technical support level still justifies a medium-conviction stance.
• India FY27 GDP forecast6.6%, with upside riskNomura’s economics team sees upside risk to India growth forecasts, supporting caution toward further rate declines.
• Thailand bond supplyPlanned issuance of no more than THB345.56bn from July to September 2026The report believes the supply size is reasonable, and the risk of large-scale issuance under the emergency decree has not materialized.
• Hong Kong liquidity and ratesAggregate balance around HKD54bn; 6mfwd6m HK IRS about 70bp above 3m HIBORIn the short term, the market is focused on whether USD/HKD will hit 7.85 and how a decline in the aggregate balance will affect HIBOR and front-end HK swaps.

Impact & implications

For investors, the report implies that the main opportunities in Asian rates markets have shifted from outright rate declines to more refined relative value and curve strategies. Korea versus Taiwan remains the clearest high-conviction expression in the report; India and Thailand are medium-conviction trades that require risk control through stop-losses and curve structure; Hong Kong, meanwhile, is waiting for FX and liquidity signals in the short term, while focusing in the medium term on the upward pressure that increased HKD bond issuance could place on long-end rates.

Risks

• If U.S. NFP is significantly weak or the Fed’s communication turns dovish, room for Asian rates to decline could reopen.
• If oil prices and Middle East geopolitical tensions worsen again, inflation premia could rise and bring upside risk to rates.
• Commercial vessel traffic through the Strait of Hormuz remains below pre-war levels, so geopolitical premia may persist.
• If foreign buying in India remains strong, gains in IGBs and NDOIS could further pressure pay positions.
• If central bank policy responses in Korea, Taiwan, and Thailand differ from the report’s assumptions, relative value and curve trades may fail.
• There is uncertainty around USD/HKD, Hong Kong’s aggregate balance, and the HIBOR path, which could alter the timing of front-end and long-end HK IRS trades.

What to watch

• This Thursday’s U.S. NFP data and its transmission to Treasuries and Asian rates.
• Whether post-June FOMC Fedspeak continues to tolerate market pricing or re-guides rate expectations.
• Oil prices, Iran-related geopolitical developments, and commercial vessel traffic through the Strait of Hormuz.
• Whether Korean industrial production, growth divergence, and the Bank of Korea hiking path validate the market pricing of nearly five rate hikes.
• Whether Taiwan growth and inflation remain strong, and whether the CBC is viewed by the market as behind the curve.
• Whether India 5-year NDOIS and 10-year IGB can hold the 200-day moving average, along with foreign inflows, El Nino risks, and changes in industrial production data.
• Subsequent BOT policy signals, Thailand PDMO bond supply plans, and whether any issuance related to the emergency decree appears.
• Whether USD/HKD reaches 7.85, changes in Hong Kong’s aggregate balance, HIBOR fixings, and the pace of HKD corporate bond issuance.