🤑 It doesn’t get more affordable. Grab this 60% OFF Black Friday offer before it disappears…CLAIM SALE

MONEY MARKETS-Korean swaps fall, Asia FX implied yields rise

Published 08/26/2009, 02:51 AM
Updated 08/26/2009, 02:54 AM
NWG
-

* Korean swaps fall after President comment on exit strategy

* Japan TIBOR downtrend meets resistance from banks

* Malaysian forward starting swaps down after policy review

* Rising implied FX yields in Asia weigh on investments

By Vidya Ranganathan

SINGAPORE, Aug 26 (Reuters) - South Korean swaps retreated from close to their highest levels this year on Wednesday after the country's president cautioned against a premature exit from loose monetary conditions.

The drop in Korean swaps, partly a pullback from very aggressive pricing of future rate rises came against a backdrop of listlessness in what investors increasingly believe are overvalued global equity markets.

Dollar lending rates hit record lows in Singapore, while yen interbank rates managed to creep down despite heavy resistance from banks that use these rates to price their loans.

Thai markets waited for a policy decision from the central bank while Malaysian forward starting swaps moved a tad lower after the central bank said on Tuesday it would persist with its easy monetary policy for a while, given benign price pressures and an uncertain growth trajectory.

Ringgit swaps showed markets pricing in 3-month swaps starting after one-year at 2.79 percent, 3 basis points lower than on Tuesday.

"I don't think Bank Negara was that dovish. But after no rate hike yesterday, it is normal for forward starting swaps to move lower," said one Malaysian rates trader.

In Japan, yen 6-month TIBOR moved down to 0.6615 percent after having held steady at 0.663 for most of this month.

TIBOR remains elevated over yen LIBOR, which has been falling much faster. "One reason for that is because TIBOR is the base rate for domestic Japanese banks as a lending rate. So they dont want to push down TIBOR rates," said RuiXue Xu, a strategist with the Royal Bank of Scotland in Tokyo.

KOREA SWAPS, IMPLIED YIELDS

Korean won interest rate swaps fell after President Lee Myung-bak was quoted saying it would be premature for the government to try to exit a loose monetary policy strategy.

The one-year swap fell to 3.3 percent from the previous day's 3.365. That rate has risen more than 60 bps since July 10 but has fallen 11 bps in the past 2 days.

"Despite expectations for higher interest rates, short-term IRS fell after the president's remarks. Still, it is difficult for IRS to fall much further, given lingering views of higher interest rates," said Hwang Tae-yeon, a fixed-income analyst at Tong Yang Securities.

In non-deliverable swaps space, one-year swaps were down 9 bps since Monday at 3.31 percent.

Elsewhere, implied yields derived from currency forwards were higher in several Asian markets, including those on rupiah, won, ringgit, coinciding with news from Indonesia that foreign ownership of the central bank's short-term bonds fell 20 percent in the past two weeks.

The implied yield derived from currency forwards basically gives the rough cost of a hedged borrowing in local currencies from offshore players, although it would not matter for investors betting on currency appreciation or vastly higher stock market returns.

The implied yield from one-year non-deliverable forwards has moved to 1.6 percent from 1.2 percent for ringgit in the past month.

On Korean won, the 1-year implied yield from NDFs was -0.5 percent at the end of June, owing to expectations of won appreciation. Now the cost of won is 1 percent for 1 year through the offshore forwards route.

"There is genuine dollar demand. People are subtly paring down exposure in Asia," said one trader, explaining the move in forwards.

Indonesian one-year NDF implied yields have moved from 5 percent to 7.5 percent in the past month. (Additional reporting by Cheon Jong-woo) (Editing by Kazunori Takada)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.