Asia ex-Japan rates markets: Nomura maintains selective Asia rates pay and curve trades amid volatile policy pricing

Overview

This Asia ex-Japan rates strategy update maintains a selective set of directional and relative-value trades after post-FOMC volatility and broad curve flattening. Nomura differentiates markets using real yields, expected central-bank paths, oil sensitivity and curve valuation versus history.

Core views

Following the FOMC meeting, Asian rates were volatile in both directions, although curve flattening was a common pattern. Hong Kong, Singapore and, to a lesser extent, Korea rates held up better, while Taiwan and Thailand rallied significantly. Nomura continues to favor paying markets with low real yields or central banks that have not begun hiking, specifically Singapore and Thailand. It is more constructive on markets with high real yields and several completed hikes, notably Korea and to some extent Indonesia. For India, where real yields are high but the RBI appears close to hiking, it prefers flatteners. The report notes that potential easing in Iran-US tensions could create optimism, but expects some geopolitical premium to remain. Market pricing implies more tightening than Nomura forecasts over the next six months. By end-Q1 2027, markets price 89bp of RBI hikes versus Nomura's 50bp forecast, 67bp from the BOK versus Nomura's 50bp, and 63bp from the Fed versus Nomura's 25bp. Nomura acknowledges that supply-driven inflation could ultimately weaken growth and make this pricing excessive, but sees no clear evidence of tighter financial conditions: credit spreads remain low, most equity markets are holding up, and Asia ex-Japan growth proxies such as PMIs remain positive. It also observes that markets often overprice the ultimate degree of tightening near the beginning of hiking cycles. For India, Nomura's economics team expects 25bp RBI hikes in October and December 2026, driven by faster food and oil inflation and stronger super-core momentum. It expects growth moderation in H2FY27 and headline inflation below 4% in H2 2027, however, and therefore forecasts no further 2027 hikes, with a 5.75% terminal rate. Because the 7 October RBI meeting is close and the RBI has signaled liquidity normalization, front-end pricing may not ease soon. Even if oil prices decline, unless the fall is very large toward USD80/bbl, Nomura expects longer-dated swaps such as 5y to have more room to decline than the front end; it therefore prefers NDOIS flatteners. In Korea, assuming the CD fixing-policy-rate spread remains near its current roughly 20bp level in six months, the market is close to pricing three hikes. This exceeds Nomura's economics view of a 3.50% policy rate, consisting of 25bp hikes in November 2026 and February 2027. Since the BOK has already raised rates twice, Nomura has stronger conviction in fading current pricing through receiving H26-5y Korea versus Taiwan, with conviction 3/5. It will reassess after Korea's September CPI release on 2 October, a key input for BOK pricing. Nomura's valuation work finds that most Asia ex-Japan real policy rates are below 1%, except Indonesia after a cumulative 100bp increase in May and June; Taiwan's real policy rate is around 0% and Thailand's is negative. Several Asian markets nevertheless have real 10y yields of roughly 2% or more, below the approximately 2.7% US 10y real yield but potentially reasonable given lower regional rates volatility. Taiwan and Thailand still have among the lowest real bond yields even after adjusting for lower inflation, supporting pay positions. Nomura maintains a December 2s10s Thailand flattener at conviction 4/5 and a pay December 5y Thailand trade at conviction 3/5. Oil sensitivity has increased: Asia rates' average beta to the US rose to 0.56 in 2026 year-to-date from 0.49 in 2025 and 0.3-0.4 in 2022-24. The latest beta of the 10y Korean Treasury bond to the 10y US Treasury rose to 1.32, versus a 2016-25 average of 0.34. Indonesia, Korea and India show the greatest sensitivity to oil prices; a USD10/bbl crude increase would raise 5y IndoGB yields by 29bp and 5y Korea and India swaps by about 20bp. At the long end, Nomura sees Asian term premia as positive, reflected in historically steep swap curves. Taiwan and Thailand 2s10s curves are around the 95th percentile of history, while Korea and Singapore 2s10s and India 2s5s are around the 75th percentile. Its 10-year regression estimates that the US 2s10s spread remains 46bp wider than fair value and that Korea's 25bp 2s10s spread is 36bp steeper than fair value; Korea's 10y real KTB yield is about 1.85% and relatively high in Asia. In contrast, Australia and China curves are relatively flat after historical adjustment. For China, Nomura initiates a December 1s5s NDIRS steepener at 5.4bp with conviction 3/5 and closes its pay December 5y versus long 30y CGB position at 66.3bp. It is more cautious on 30y CGBs because 30y CGB futures open interest rose to RMB289bn from roughly RMB244bn at the start of the month, close to the prior RMB299bn high on 14 August. In Hong Kong, Nomura enters a receive March-2027 1y IRS position at an indicative 4.30%, 5bp below the 4:30pm close, with conviction 3/5. The rationale is that banks left prime rates unchanged and HIBOR did not rise after the Fed hike, though the trade remains sensitive to front-end US-rate moves; with three full hikes already priced, Nomura would look to pay the US leg at better levels.

Analysis framework

Nomura compares market-implied central-bank hikes with its economics forecasts, then combines real policy and bond yields, oil-price sensitivity, historical curve percentiles and regression-based fair-value estimates to identify relative-value and directional rate trades. It uses upcoming policy and inflation releases as reassessment points.

Methodology notes

• Industry AnalysisSupply-demand framework

  Inflation, growth, liquidity conditions and geopolitical oil-risk assessment

  The report assesses how food and oil inflation, growth, financial conditions and geopolitical risk may affect policy expectations and rate markets.

• Fixed Income and CreditYield curve analysis

  Historical curve steepness and regression-based curve fair value

  Nomura compares 2s10s or 2s5s curve slopes with historical distributions and estimates fair value using past 10-year data to support flattener or steepener trades.

• Quantitative, Factor, and Portfolio TheoryBeta/alpha analysis

  Rate sensitivity to US Treasury yields and oil-price changes

  The report uses historical beta estimates to quantify how Asian rates, particularly in Indonesia, Korea and India, could respond to changes in US yields and crude oil prices.

Asset mapping & comparison

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

• Singapore 5y rates

  Nomura maintains a pay view because real yields are low and the central bank has not started hiking.

  Strengths

  Low real-yield valuation supports the pay thesis.

  Comparison

  Singapore's curve is historically steep, with 2s10s around the 75th percentile.

• Thailand rates

  Nomura maintains a December 2s10s flattener and pay December 5y position.

  Strengths

  Negative real policy rate and among the lowest real bond yields in Asia.

  Comparison

  Thailand 2s10s ranks around the 95th percentile historically.

• India NDOIS

  Nomura prefers flatteners as near-term RBI pricing may remain firm while longer maturities could have more scope to decline.

  Strengths

  Market RBI pricing is more aggressive than Nomura's terminal-rate outlook.

  Weaknesses

  Near-term food and oil inflation supports expected October and December hikes.

  Comparison

  India has high real yields and high oil sensitivity.

  Risks

  Oil-price changes can affect the curve; 5y India swaps are estimated to rise about 20bp per USD10/bbl oil increase.

• Korea versus Taiwan rates

  Nomura favors receiving H26-5y Korea versus Taiwan to fade Korean policy pricing.

  Strengths

  Korea has already hiked twice; market pricing and the curve appear rich versus Nomura's forecasts and fair value.

  Comparison

  Korea's curve is estimated 36bp steeper than fair value, while Taiwan has among the lowest real bond yields.

  Risks

  The Korea September CPI release could alter BOK pricing.

• China NDIRS and CGBs

  Nomura initiates a December 1s5s NDIRS steepener and closes pay December 5y versus long 30y CGB.

  Strengths

  China's curve appears relatively flat after adjustment for recent history.

  Weaknesses

  Nomura is cautious on 30y CGBs.

  Comparison

  The new steepener is initiated at 5.4bp; the closed 5y-versus-30y CGB position was at 66.3bp.

  Risks

  30y CGB futures open interest reached RMB289bn, close to the prior RMB299bn high.

• Hong Kong 1y IRS

  Nomura enters a receive March-2027 1y IRS position.

  Strengths

  Hong Kong banks left prime rates unchanged and HIBOR did not rise after the Fed hike.

  Comparison

  Indicative entry level is 4.30%, 5bp below the 4:30pm close.

  Risks

  The position is sensitive to front-end US-rate moves.

Key data

• RBI hikes priced by end-Q1 202789bpVersus Nomura forecast of 50bp.
• BOK hikes priced by end-Q1 202767bpVersus Nomura forecast of 50bp; the BOK had already delivered two 25bp hikes in July and August.
• Fed hikes priced by end-Q1 202763bpVersus Nomura forecast of 25bp.
• Asia rates beta to US rates0.56 in 2026 YTDUp from 0.49 in 2025 and 0.3-0.4 during 2022-24.
• 10y KTB beta to 10y UST1.32 latestVersus a 2016-25 average of 0.34.
• Oil-price effectUSD10/bbl increaseEstimated to raise 5y IndoGB yields by 29bp and 5y Korea and India swaps by about 20bp.
• Korea curve valuation36bp steeper than fair valueBased on a current 2s10s spread of 25bp.
• US curve valuation46bp wider than fair valueBased on Nomura's regression using past 10-year data.

Impact & implications

Nomura's trade selection reflects uneven regional exposure to policy normalization, inflation and oil risk. It sees low real-yield markets as vulnerable to higher rates, finds Korea's priced policy path and curve too restrictive, expects India's long end to outperform its front end under a less aggressive eventual RBI path, and identifies relative curve-value opportunities in China and Hong Kong.

Risks

• Geopolitical premium may remain despite headlines suggesting potential easing in Iran-US tensions.
• The Hong Kong receive position is sensitive to front-end US-rate movements.
• Higher oil prices could materially lift Indonesian, Korean and Indian rates.
• Korea's September CPI release could change BOK pricing expectations.
• Elevated 30y CGB futures open interest contributes to Nomura's caution on 30y CGBs.

What to watch

• Korea's September CPI release on 2 October, which Nomura identifies as important for BOK pricing.
• The RBI meeting on 7 October and evidence of continued liquidity normalization.
• Food, oil and super-core inflation trends in India.
• Oil-price movements and their effect on Asia rates sensitivity.
• Hong Kong prime-rate and HIBOR behavior after Fed moves.