10-Year Future Hits Contract High

Futures in South Korea are higher, the 10-year hitting a contract high – last up 37 ticks at 126.27. Markets continue to focus on comments from the MOF yesterday that the government would step in to stabilize markets if needed. Markets await today's 10-year linker auction.

• Elsewhere, Bloomberg data shows South Korea sold $105.3bn worth of bonds in 2021 so far, Issuance was up 0.5% compared to the same period last year.
• HSBC are bullish on South Korean bonds, they point out the KRW5Y5Y forward, which is considered as an indicator of the peak rate, is already above Korea's neutral nominal rate, the 1-5Y sector of the KRW swap curve will continue to be exposed to near-term monetary tightening expectations.
• The bank says "Despite increasing risks of a policy normalisation by the Bank of Korea (BoK), there is limited room for longdated KRW rates to rise in our view" On the risk of tightening they say "Risks around eventual tightening by the BoK are becoming increasingly priced in KRW swap rates following the latest BoK policy meeting and speeches at which the central bank expressed willingness to normalise monetary policy against the backdrop of increasing concerns around financial imbalances. Swap markets are already pricing three hikes over the next 12 months. Even though this is aggressive, it is common that market expectations for tightening tends to overshoot going into a hiking cycle. As market participants prepare for eventual policy action by the BoK, this is likely to get increasingly priced in the 1-5Y sector of the rates curve."