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Korean Curve Bull Falttens Ahead Of BoK Policy Decision Tomorrow, China Yields Little Changed

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China Government Bonds are trading slightly mixed, with a light local data calendar providing few market-moving catalysts.

  • By contrast, the South Korean Sovereign Bond Curve has bull-flattened, with yields 1.5 to 3.5bps lower, ahead of tomorrow’s BoK Policy Decision.
  • None of the economists surveyed by Bloomberg see a change at tomorrow’s BoK policy meeting. This is also our firm bias, which would leave the policy rate at 3.50%, which is where it has been since January last year.
  • Overall, our sense is that the BoK is likely to retain confidence in a further softening in the inflation backdrop as we progress through H2 this year. However, given developments since the last policy meeting, we expect a cautious stance around near-term rate cuts (i.e. in the next few months).
  • The balance of risks points more towards easing at the end of the second half rather than the beginning. Full preview here
  • Earlier BOK business survey data for June painted a resilient picture across manufacturing and non-manufacturing sentiment. The rate of ascent in these survey measures is fairly modest, particularly compared to the 2020 cycle. Still, up moves are likely to be welcomed by the authorities and it helps offset some of the recent downshift in headline consumer sentiment readings from a broader economic standpoint.
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China Government Bonds are trading slightly mixed, with a light local data calendar providing few market-moving catalysts.

  • By contrast, the South Korean Sovereign Bond Curve has bull-flattened, with yields 1.5 to 3.5bps lower, ahead of tomorrow’s BoK Policy Decision.
  • None of the economists surveyed by Bloomberg see a change at tomorrow’s BoK policy meeting. This is also our firm bias, which would leave the policy rate at 3.50%, which is where it has been since January last year.
  • Overall, our sense is that the BoK is likely to retain confidence in a further softening in the inflation backdrop as we progress through H2 this year. However, given developments since the last policy meeting, we expect a cautious stance around near-term rate cuts (i.e. in the next few months).
  • The balance of risks points more towards easing at the end of the second half rather than the beginning. Full preview here
  • Earlier BOK business survey data for June painted a resilient picture across manufacturing and non-manufacturing sentiment. The rate of ascent in these survey measures is fairly modest, particularly compared to the 2020 cycle. Still, up moves are likely to be welcomed by the authorities and it helps offset some of the recent downshift in headline consumer sentiment readings from a broader economic standpoint.