Korean stocks and rates are seeing......>

SOUTH KOREA: Korean stocks and rates are seeing some slight reprieve today

following heavy losses over the course of the month. The Kospi trades flat just

shy of 2000, while 10-year swaps are up 2.2bps at 2.0185%.

- The combination of falling stocks and falling yields has seen the dividend

yield on the Kospi rise above the yield on the 10-year bond for only the second

time on record, which would seem to indicate deflation fears. 

- However, inflation expectations have been on a rising trend. As a result, real

yields have dropped to a near-record low relative to the equity dividend yield,

with the spread at -135bps, testing the 2011 eurozone financial crisis lows. 

- With the BOK unlikely to tighten any time soon in the face of such market

moves, the odds favour won weakness.