South Korea IRS Rates Decline as High CD Rates Limit Upside

South Korea's interest rate swap (IRS) rates declined across the board on the 10th day, with the 1-year IRS rate falling 2.25 basis points to 3.4075% as of 4:30 PM. The decline was driven by high certificate of deposit (CD) rates at 2.91%, creating market perception that further rate increases face limited upside. Recent money market fund (MMF) inflows have strengthened short-term bonds, prompting some market participants to unwind IRS hedges ahead of the Monetary Policy Committee meeting.

IRS Rates Fall Across Maturity Spectrum

The 1-year IRS rate fell 2.25 basis points to 3.4075% as of 4:30 PM. The 3-year rate declined 0.75 basis points, while the 5-year rate dropped 1.00 basis point. The 10-year rate also fell 1.00 basis point.

High CD Rates and MMF Inflows Drive Short-Term Offers

A bond dealer at a securities firm stated that the CD rate at 2.91% is high, creating market perception that rate increases face limited further upside. The dealer noted that this factor is driving offers in swaps with maturities under one year.

The dealer explained that MMF inflows have recently strengthened short-term bonds. This development has generated demand to unwind IRS-related hedges before the Monetary Policy Committee meeting.

CRS Rates Show Mixed Movement as Swap Basis Adjusts

Currency rate swap (CRS) rates moved in different directions. The 1-year CRS rate fell 2.50 basis points, and the 2-year rate declined 0.50 basis points. The 3-year rate rose 1.50 basis points, and the 5-year rate increased 2.00 basis points.

The swap basis inversion, which measures the difference between CRS and IRS rates, widened 0.25 basis points in the 1-year segment and narrowed 3.00 basis points in the 5-year segment.

FAQ

What caused South Korea's IRS rates to fall on the 10th day?

IRS rates declined due to high CD rates at 2.91%, which created market perception that further rate increases face limited upside. Recent MMF inflows strengthened short-term bonds, and some market participants unwound IRS hedges ahead of the Monetary Policy Committee meeting.

How did CRS rates move compared to IRS rates on the 10th day?

CRS rates showed mixed movement, with 1-year and 2-year rates falling 2.50bp and 0.50bp respectively, while 3-year and 5-year rates rose 1.50bp and 2.00bp. The swap basis inversion widened 0.25bp for 1-year and narrowed 3.00bp for 5-year.