Korean interest rate swaps are off......>

KOREA RATES: Korean interest rate swaps are off their highs but remain up on the

day with the 2-year up 0.6bps trading at 1.8830%. Further gains look likely as

inflation pressures continue to rise. 

- Rate expectations are not rising as rapidly as long-term breakeven inflation

expectation, which are trading at 18-month highs of 1.1150%. As a result, in

real terms, rates continue to decline, with the 2-year trading at 76bps from as

high as 139bps at the start of the year. 

- The BOK's reluctance to hike rates amid a more inflationary fiscal outlook and

rising oil import prices is keeping real rates under pressure, which should keep

USDKRW on the front foot.