Asia rates strategy: Nomura retains selective Asia rate-paying and flattening trades but cuts conviction in Thailand
Nomura still expects Asia curves eventually to bear flatten as global and regional tightening pressures build. It reduces conviction in the Thai 2s10s flattener to 3/5 and closes its Thai 5-year paid position after recent market moves.
Summary
Nomura still expects Asia curves eventually to bear flatten as global and regional tightening pressures build. It reduces conviction in the Thai 2s10s flattener to 3/5 and closes its Thai 5-year paid position after recent market moves.
- Thai Dec-2s10s THoR flattener conviction is reduced from 4/5 to 3/5; the current level is 80.5bp.
- Nomura closes its paid Dec-5y THOR position at a current level of 1.92%.
- It remains paid in Dec-5y SORA and Dec-5y Taiwan versus Korea, each at 3/5 conviction.
- Higher oil prices, sustained Asian growth and Fed tightening are seen as lowering the hurdle for Asian central-bank hikes.
Report Interpretation
Overview
This Asia rates strategy note maintains Nomura's selective view that regional curves should ultimately bear flatten and that markets with low real yields remain candidates for paid-rate positions. The immediate adjustment is a lower-conviction Thai flattener and the closure of a Thai 5-year paid trade after US-rate and Thai-auction developments increased uncertainty.
Core views
Nomura maintains a selective paid-rate and curve-flattener stance in Asia. Its central reasoning is that Fed hikes, elevated oil prices and sustained Asian growth should lower the threshold for regional central banks to tighten policy, especially where they have not yet hiked. The report also argues that flatteners from the two-year point onward have historically tended to perform into the first hike of a cycle even after accounting for negative carry. On that basis, it continues to expect Asia curves eventually to bear flatten. The institution nevertheless sees pressure on the near-term expression of that view. Stronger-than-expected PMI readings caused front-end US rates to reprice higher, but long-end US rates did not outperform as in the recent pattern. Ten-year US Treasury yields moved cleanly through the 5% potential support level, introducing uncertainty for the broader rates backdrop. Nomura highlights the poor five-year US Treasury auction, which tailed by more than 3bp, and points to the subsequent seven-year auction and 20-30-year Treasury buyback as immediate market focal points. For Thailand, Nomura cuts conviction in the December 2s10s THoR flattener from 4/5, where it had been raised the prior week from 3/5, back to 3/5. The trade was at 80.5bp. It retains some exposure because the Thai curve remains historically steep after adjusting for the policy-rate level, by around 30bp. However, lukewarm demand at the prior day's Thai government-bond auctions in the five-year and 50-year maturities supports a more cautious implementation. Nomura also closes its paid December five-year THOR position at a current level of 1.92%, judging that the past week's Thai-rate outperformance means paid positioning may have become more elevated than anticipated. For outright positions, Nomura remains paid in markets with low real yields and prospective liquidity or policy tightening, naming Singapore, Taiwan and Thailand. It keeps paid positions in December five-year SORA and December five-year Taiwan rates versus Korea, both at 3/5 conviction because volatility has recently been elevated. The note therefore preserves the broader tightening and flattening thesis while reducing risk in the Thai implementation.
Analysis framework
Nomura links global rate repricing, oil prices and Asian growth to the likelihood of regional policy tightening, then assesses curve shape and real-yield conditions to select trade expressions. It combines historical curve behavior around first rate hikes with current US Treasury-market moves, Thai bond-auction results and relative rate performance to adjust conviction and close or retain individual positions.
Methodology notes
Yield-curve flattening analysis
The report evaluates the spread between Thai two-year and 10-year THoR rates and the historical steepness of the curve after adjusting for the policy-rate level to judge whether a flattener remains attractive.
Policy-tightening and real-yield assessment
Nomura uses Fed tightening, oil prices, Asian growth, low real yields and prospective liquidity tightening to assess which Asian rate markets may be vulnerable to higher rates.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Thailand Dec-2s10s THoR flattenerMaintained as a curve-flattening position at reduced conviction.
- Strengths
- The Thai curve remains historically steep after policy-rate adjustment.
- Weaknesses
- US long-end-rate uncertainty and lukewarm Thai five-year and 50-year auctions.
- Comparison
- Conviction was reduced from 4/5 to 3/5; it had previously been raised from 3/5 to 4/5.
- Risks
- The report cites uncertainty after 10-year US Treasury yields moved through the 5% potential support level.
- Thailand Dec-5y THORPaid position closed.
- Weaknesses
- Thai rates outperformed over the prior week, leaving paid positioning potentially higher than anticipated.
- Comparison
- Closed at a current level of 1.92%.
- Risks
- Further rate outperformance could challenge the prior paid positioning.
- Dec-5y SORAPaid position maintained.
- Strengths
- Singapore is identified as a market with low real yields and potential liquidity or policy tightening ahead.
- Weaknesses
- Recent volatility is elevated.
- Comparison
- Maintained at 3/5 conviction.
- Risks
- Elevated volatility.
- Dec-5y Taiwan versus KoreaPaid Taiwan-rates position versus Korea maintained.
- Strengths
- Taiwan is identified as having low real yields and potential liquidity or policy tightening ahead.
- Weaknesses
- Recent volatility is elevated.
- Comparison
- Maintained at 3/5 conviction.
- Risks
- Elevated volatility.
Key data
- Thai Dec-2s10s THoR flattener80.5bpCurrent level; conviction reduced from 4/5 to 3/5.
- Thai curve steepnessaround 30bpHistorically steep after adjustment for the policy-rate level.
- Paid Dec-5y THOR1.92%Current level when Nomura closed the position.
- US Treasury five-year auction tailmore than 3bpThe auction result was described as very poor.
- SORA and Taiwan paid positions3/5 conviction eachDecember five-year SORA and December five-year Taiwan versus Korea positions remain open.
Impact & implications
The report preserves the broader expectation of higher Asian rates and eventual bear flattening, but signals that volatile US long-end yields and softer Thai auction demand warrant a less aggressive Thai positioning. It shifts exposure toward selective paid-rate trades in markets with low real yields and potential tightening ahead.
Risks
- A clean move through the 5% potential support level in 10-year US Treasury yields has introduced uncertainty to the Asia-flattening view.
- Elevated recent volatility reduces conviction in the SORA and Taiwan-versus-Korea paid positions.
- Lukewarm Thai government-bond auction results weaken confidence in the Thai trade expression.
What to watch
- The seven-year US Treasury auction and the 20-30-year US Treasury buyback.
- Whether Asian central banks face greater pressure to hike as Fed tightening, oil prices and regional growth persist.
- Thai curve behavior and demand for Thai government bonds following the weak five-year and 50-year auctions.