Asia rates Report Interpretation

Overview

This Asia rates strategy report maintains Nomura's overall pay stance despite recent adverse market moves. The institution differentiates by market: it is relatively more bearish on Singapore and Thailand rates, favors India steepeners, and sees more attractive long-end receiving value in Hong Kong and Korea.

Core views

Asian ex-Japan rates delivered mixed performance during the past week, although most markets had outperformed US rates since the FOMC meeting, led by Korea. Nomura notes that the market may interpret the long-end US rates selloff as more of a Federal Reserve credibility issue. Its existing Asia pay and flattener positions moved against it after the FOMC, even after some risk had been reduced beforehand. Nevertheless, Nomura maintains a slightly bearish medium-term view: it sees limited downside for US rates because the next Fed move is still more likely to be a hike than a cut, while US macro data and equities remain resilient. It also expects oil to retain some geopolitical premium despite the latest offer of talks with Iran, and notes that the average Asia PMI has stayed stable above 50. Within this broad view, Nomura is more bearish on Singapore and Thailand rates and more constructive on the long ends of Hong Kong and Korea. In Korea, recent outperformance has reduced the appeal of the existing Dec-1s4s steepener. Nomura had expected front-end rates to price out more hikes, helped by a weaker KOSPI and lower USD/KRW, but the 9x12 FRA has fallen to about 3.75%, implying a policy rate of roughly 3.50% in nine to 12 months—back in line with its economists' view. The institution therefore judges that further removal of front-end hike pricing is limited. Strong export and industrial-production data, together with still-firm DRAM-price and housing-price expectations in the Bank of Korea survey, reinforce that assessment. Nomura closes the steepener at 24.9bp and instead looks to receive Korea on rate bounces in longer maturities, where curve measures such as 6m1y versus 5y5y have rebounded significantly from recent lows. For India, Nomura favors curve steepeners into the following day's RBI meeting. Its economics team expects the RBI to leave both policy rates and its stance unchanged, while lowering its FY27 CPI inflation forecast to 4.8% from 5.1%. Gradually rising banking-system excess liquidity and potential FCNR(B) inflows are expected to put downward pressure on the MIBOR fixing, limiting front-end rates. The long end is a more cautious part of the trade: oil's expected geopolitical premium could keep pressure on yields, while Bloomberg's deferral of Indian government bond inclusion in a global index may weigh on long-end bonds because some foreign inflows into maturities of 15 years and above may have anticipated inclusion. Nomura sees scope for lower long-end Hong Kong rates. Non-financial corporate long-end bond issuance has slowed in recent months, while stabilization in Hong Kong government fiscal reserves reduces the need for government bond supply. The loan-to-deposit ratio rebounded modestly in June but remains low, at just above 70%. On relative value, the 10-year Hong Kong-US spread has already recovered from a low of -85bp to just above -50bp, yet the institution still identifies long-end Hong Kong receiving as attractive. Singapore is the report's clearest long-end pay preference on relative value. The five-year point remains the high point of the curve on a bond-swap-spread basis, and Singapore has been the strongest 2026 year-to-date Asian rates performer apart from China. Nomura therefore finds paying long-end SGD rates more attractive than paying Asia peers at prevailing levels. Robust fundamentals and a likely increase in core CPI in coming months could add curve-steepening pressure, while scheduled long-tenor Singapore government securities auctions—10-year in August and 15-year in September—are an additional supply consideration. For Thailand, Nomura retains its recommended pay September 5-year THOR position and September 5s10s flattener, with conviction levels of 4/5 and 3/5 respectively, despite rates moving lower over the preceding week. It argues that low absolute yields, Thailand's relatively high sensitivity to oil prices, and resilient export, PMI and core-inflation data support paying rates. The five-year point also appears less expensive on a 2s5s10s fly basis than comparable points in Korea and Singapore. Nomura will reassess following the July CPI release or if 5-year THOR falls below 1.68%, its current 100-day moving average.

Analysis framework

Nomura begins with the regional macro backdrop—US policy expectations, oil, and Asian activity—then applies relative-value and curve analysis to each market. It compares implied policy pricing, curve spreads, bond-swap spreads, supply conditions, liquidity, inflation and economic indicators to identify where paying, receiving, steepening or flattening offers the preferred risk-reward.

Methodology notes

• Industry AnalysisSupply-demand framework

  Bond supply-and-demand analysis

  The report links slower corporate issuance, government fiscal funding needs, scheduled bond auctions and anticipated foreign flows to long-end rate and bond-price pressure.

• Other

  Relative-value curve and cross-market spread analysis

  Nomura compares FRA-implied policy rates, curve spreads, bond-swap spreads and relative curve valuations to choose maturities and markets for receiving, paying, steepening or flattening trades.

Asset mapping & comparison

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

• Korea rates

  Close the Dec-1s4s steepener and favor receiving on bounces in longer tenors.

  Strengths

  Longer-tenor relative value improved after the curve rebounded from recent lows.

  Weaknesses

  Further decline in front-end hike pricing appears limited.

  Comparison

  Longer-tenor receiving is preferred over the prior front-end steepener.

  Risks

  Strong export and industrial-production data, DRAM pricing and housing expectations may keep policy expectations firm.

• India rates

  Favor curve steepeners into the RBI meeting.

  Strengths

  Unchanged policy expectations, lower FY27 inflation forecast, rising excess liquidity and potential FCNR(B) inflows should cap front-end rates.

  Weaknesses

  The long end remains a cautious area.

  Comparison

  Front-end conditions are more supportive than long-end conditions.

  Risks

  Oil's geopolitical premium and deferred global-index inclusion could pressure long-end bonds.

• Hong Kong rates

  Receive long-end Hong Kong rates versus SORA.

  Strengths

  Slower corporate issuance and stabilized fiscal reserves reduce long-end supply pressure.

  Comparison

  The 10-year HK-US spread has recovered from -85bp to just above -50bp.

• Singapore rates

  Pay long-end SGD rates.

  Strengths

  The five-year point is the high point on a bond-swap-spread basis; strong economic fundamentals and likely higher core CPI support steepening pressure.

  Weaknesses

  Singapore has already outperformed most Asian markets year to date.

  Comparison

  Nomura finds long-end SGD pay more attractive than Asia peers on prevailing levels.

  Risks

  Long-tenor SGS auctions in August and September are a supply consideration.

• Thailand rates

  Maintain pay September 5-year THOR and September 5s10s flattener positions.

  Strengths

  Low absolute yields, high oil sensitivity and resilient export, PMI and core-inflation data support the view.

  Weaknesses

  Thai rates moved lower against the recommendations during the past week.

  Comparison

  The five-year point is less expensive on a 2s5s10s fly basis than Korea and Singapore.

  Risks

  The positions will be reassessed after July CPI or if 5-year THOR falls below 1.68%.

Key data

• Korea 9x12 FRA~3.75%Implies a policy rate of ~3.50% in 9-12 months, limiting further room to price out hikes.
• Korea Dec-1s4s steepener close level24.9bpNomura closes the position after Korea's recent outperformance.
• India FY27 CPI forecast4.8%Nomura's economics team expects the RBI forecast to be revised down from 5.1%.
• Hong Kong loan-to-deposit ratioJust above 70%It rebounded modestly in June but remains low.
• 10-year Hong Kong-US spreadJust above -50bpRecovered from a low of -85bp.
• Thai 5-year THOR reassessment level1.68%Nomura would reassess if the rate falls below this current 100-day moving average.

Impact & implications

The report argues for retaining an overall bearish Asia-rates bias but expressing it selectively rather than uniformly. It shifts Korea exposure away from the front-end steepener, prefers long-end Hong Kong and Korea receiving opportunities, favors India steepeners, and keeps Singapore and Thailand as the more compelling markets for pay-oriented positioning.

What to watch

• The RBI meeting outcome, including its policy stance and FY27 CPI forecast revision.
• Oil prices and the persistence of their geopolitical premium.
• The July Thailand CPI release and whether 5-year THOR falls below 1.68%.
• Long-tenor SGS auctions in August and September.
• Long-end Indian bond flows following the deferred global-index inclusion decision.