Maintain a slightly cautious stance on Asia rates, favor paying Singapore and Thailand rates, and retain Korea curve flatteners
AI summary card
Maintain a slightly cautious stance on Asia rates, favor paying Singapore and Thailand rates, and retain Korea curve flatteners
Nomura believes lower US rates have not sufficiently carried over to Asian markets, while growth, inflation, oil prices, and bond supply factors make higher-rate trades in Singapore and Thailand more valuable.
- Maintain a modest pay-rates stance in Asia ex-Japan.
- In Singapore, favor paying the 5y5y forward; the Hong Kong relative-value trade is pay Singapore and receive Hong Kong, at a DV01 ratio of 2:1.
- Maintain the Korea Mar 27-2s7s NDIRS flattener and avoid flattener positions in the 10-year and longer tenors.
- In Thailand, shift the pay leg from Sep-5y to Jun 27-5y to address recent global curve steepening.
Report interpretation
Overview
This report discusses Asia ex-Japan rates strategy. Following softer US employment data, market pricing for Fed rate hikes over the remainder of 2026 declined from around 34bp to around 25bp, but US and most Asian rates did not fall materially. Nomura therefore maintains a modest pay-rates view on Asia, believing that the value of higher-rate positions in Singapore and Thailand is superior to that in other markets, while retaining Korea curve-flattener positions.
Core views
For Singapore, upward revisions to 2026 and 2027 GDP forecasts, a 2026 core inflation forecast of 2.1%, and upcoming 10-year and 15-year SGS auctions support higher long-end rates. Hong Kong rates have risen materially relative to the US in recent months. If USD/HKD approaches 7.85, HKMA liquidity absorption could be a catalyst, but the curve may flatten and room for further narrowing in Hong Kong-US spreads is limited. Downside in Korea front-end rates is limited, while CD rate seasonality may turn higher from September; if recent corrections in KOSPI and USD/KRW persist, mid-curve rates may be constrained by lower terminal rates and term premia. Thai rates have reasonable beta to oil prices, growth and inflation prospects are stabilizing, and the market prices only around 25bp of BOT rate-hike premium.
Analysis framework
The analysis centers on macro fundamentals, policy pricing, inflation and growth expectations, liquidity, bond supply, cross-market spreads, and curve shape, combining relative-value analysis, directional rate trades, and explicit stop-loss levels to formulate trade recommendations.
Methodology notes
Compare rate levels, spreads, and DV01 allocations across markets such as Singapore and Hong Kong
Capture cross-market valuation normalization through a pay-Singapore/receive-Hong Kong structure, while controlling risk exposure with a 2:1 DV01 ratio.
Flattening of the Korea 2-year to 7-year curve
Express a yield-curve-flattening view by exploiting the difference between limited downside in front-end rates and constrained mid-curve term premia.
Growth, inflation, oil prices, liquidity, and government bond supply
Assess the impact of changes in macro expectations, banking-system liquidity, and long-duration bond issuance on rates across tenors.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Singapore 5-year forward 5-year rateRecommend paying
- Strengths
- Upward revisions to growth forecasts, elevated core inflation, and forthcoming long-duration government bond supply.
- Weaknesses
- Liquidity factors have limited direct impact on the 5y5y forward.
- Comparison
- Offers more upside value than Hong Kong rates; forms a relative-value trade with the Hong Kong leg at a 2:1 DV01 ratio.
- Risks
- A material decline in global rates or weakening Singapore macro data.
- Hong Kong 5-year forward 5-year rateReceive in the relative-value trade
- Strengths
- If USD/HKD approaches 7.85, liquidity absorption could provide a market catalyst.
- Weaknesses
- Liquidity tightening is more likely to drive curve flattening and may not raise the 5y5y forward rate.
- Comparison
- Hong Kong-US spreads have already priced in some narrowing, leaving limited room for further compression.
- Risks
- Reassess if the relative-value structure loses a further 5bp from current levels.
- Korea Mar 27-2s7s NDIRSMaintain flattener
- Strengths
- Limited downside in front-end rates, seasonal increases in CD rates, and August rate-hike expectations provide support.
- Weaknesses
- Weak price performance in long-dated KTBs limits the feasibility of flattener trades further out the curve.
- Comparison
- Prefer the 2-year to 7-year segment; do not recommend exposures involving 10-year and longer tenors.
- Risks
- Reassess if the spread rises above 20bp.
- Thailand Jun 27-5y rateRecommend paying
- Strengths
- Oil-price beta, stable growth and inflation prospects, and still-limited rate-hike pricing.
- Weaknesses
- Trade conviction is only 3/5 and is highly affected by changes in global curves.
- Comparison
- Move from Sep-5y to a longer tenor to adapt to global curve steepening.
- Risks
- A 7bp loss from current levels triggers the stop-loss.
Key data
- Fed rate-hike pricing for the remainder of 2026Around 25bpAround 34bp before the release of weaker-than-expected nonfarm payroll data.
- Singapore 2026 core inflation forecast2.1%Slightly above market consensus.
- Singapore government bond auctions10-year: August 27; 15-year: September 28Long-duration supply may exert upward pressure on rates.
- Hong Kong-US rate spreads1y1y HK-SOFR: -35bp; 3-month HIBOR-SOFR: -83bpThe market has already priced in a degree of narrowing in Hong Kong-US spreads.
- Korea Mar 27-2s7s NDIRSCurrent 13.5bp; target 0bp; reassessment level above 20bpTrade conviction is 3/5.
- Thailand rate trade levelsSep-5y: 1.685%; Jun 27-5y: 1.865%Shift the pay leg from Sep-5y to Jun 27-5y.
Impact & implications
For rates investors, the report does not expect Asian rates to decline broadly alongside the pullback in US front-end rate-hike expectations. A more suitable expression is to maintain a modest pay-rates bias, focusing on Singapore long-end supply, Thailand oil-price and policy repricing, Hong Kong liquidity absorption, and Korea mid-curve performance; positions should be paired with explicit relative-value ratios and stop-loss discipline.
Risks
- Falling oil prices or easing geopolitical tensions could weaken the inflation and higher-rate rationale.
- A rapid decline in US and global rates could weigh on Asian pay-rates trades.
- Hong Kong liquidity absorption may fall short of expectations, or Hong Kong-US spreads may move differently than expected.
- Continued weakness in Korean long-term government bonds could disrupt curve trades.
- Weaker Thai growth, inflation, or monetary-policy expectations could pressure pay-rates trades.
What to watch
- US employment and inflation data, and changes in Fed rate-hike pricing.
- Brent oil prices and progress in US-Iran negotiations.
- Singapore GDP, core inflation, SORA, and the results of 10-year and 15-year SGS auctions.
- Whether USD/HKD approaches 7.85, Hong Kong banking-system aggregate balance, and HIBOR-SOFR spreads.
- Korea CD rate seasonality, the August policy decision, KOSPI, USD/KRW, and long-term KTB price performance.
- Thailand's oil-price sensitivity, growth and inflation data, and the BOT policy path.