Korean 10-year bond futures failed to...>

KOREA RATES: Korean 10-year bond futures failed to hold on to its opening gains

above 125.0, with the contract edging back down to 124.95. The uptrend remains

intact but prices have failed to join in the break higher seen in the US over

recent days, which has seen the US-Korea 10-year spread edge lower, currently

trading at 86.6bps. 

- 2-year swaps are down 2 ticks at 1.8625% but are managing to hold last week's

lows, causing US-Korea 2-year swaps spreads to trade near 1-month lows at

112bps. 

- Today's weak PPI data for Oct, which came in at 2.2% y/y from 2.7% in Sep has

failed to impact markets, with real yields seeing continued upside pressure due

to falling inflation expectations. 

- Upside pressure is mounting on Korean CDS spreads as US corporate credit

stresses emerge, with the 10-year CDS trading at 2-month highs of 67.1bps. 

- With falling inflation expectations and rising credit stress, the BOK at this

stage looks highly unlikely to hike at its next meeting on Nov 30.