Korean rates have risen across the......>

KOREA RATES: Korean rates have risen across the board this morning following the

US Fed's rate hike on Wednesday. The rise in rate expectations was mainly seen

at the short end with 6-month swaps rising by 3bps to 1.745%, causing rate

differentials with the US to actually narrow slightly. 

- The rise in Korean rate expectations comes as BOK Governor Lee Ju-yeol told

reporters today that "the impact of the (US) rate hike and the faster pace of

rate increases on the South Korean market should not be worrisome." Several

economists have come out in recent days arguing that ongoing US monetary

tightening will not significantly impact Korean rates, but risks are certainly

rising. 

- Despite a slight narrowing of Korea-US rate expectations, the USDKRW is

trading 0.3% higher than its Tuesday close (markets were closed yesterday) at

1081.60. As we have argued over recent months, downside risks are rising for the

won as the currency remains roughly 9% overvalued based on the historical

correlation between USDKRW and default risk-adjusted real bond yields.