[NH/Seungwon Kang] Fixed Income Comment - Korea more sensitive to trade war fears than US

Analyst Seungwon Kang   / sw.kang@nhqv.com

[Fixed Income Comment] Korea more sensitive to trade war fears than US

	Trade war fears are to remain in play for now. Although the BOK is expressing worries towards slowing domestic demand, an economic  recovery remains clearly visible in the US. Against this backdrop,  we expect KTB yields to decline and TB yields to remain range bound. ▶Major issues in global bond markets After the March FOMC meeting, Donald Trump signed a memorandum imposing  tariffs on Chinese imports. In response, China announced plans for retaliatory  tariffs on US imports. Resulting trade war fears have led to heightened volatility  in global financial markets. We expect trade war fears to remain in play for now,  believing that Trump will use protectionism as a means to regain public favor  following the GOP’s defeat in a recent US election (Pennsylvania). We do not view the US-China trade dispute as being a game changer for global  financial markets, pointing out that the US’s trade imbalance concerns cannot be  solved by imposing tariffs. But, given Korea’s high dependence on exports, it looks  inevitable that domestic yields will react sensitively to related uncertainties.  To make things worse, the BOK is expressing worries towards slowing domestic  demand. Against this backdrop, KTB yields will likely decline over the near term. In the US, despite a likely greater flight-to-safety tendency over the near term,  we expect TB yields to remain range bound this week. In detail, considering that:  1) economic recovery is clearly visible in the US; and 2) the Fed has opened  the possibility of further FF rate hikes in March, depending on the future trajectory  of US inflation figures, we believe that US TBs will react more sensitively  to economic indicators. ▶Weekly global bond market outlook and trading recommendations Developed markets: This week, the US bond market is to remain range bound,  with 10yr US TB yield likely moving between 2.75~2.87%. TB 2/10yr and EMU  spreads should narrow. TB-Bund spreads are to remain range bound. Domestic bond market: This week, the domestic bond market will likely remain  range bound, with 3yr KTB yield moving between 2.15~2.26%, 5yr KTB yield  ranging between 2.35~2.48%, and 10yr KTB yield shifting between 2.60~2.72%. Asia (excluding Japan): Our investment suggestions for the region in order of  preference are: China, Thailand, Malaysia, and Indonesia. Trading recommendations: We advise: 1) staying long on 3yr CGBs; and  2) going long on 3yr KTBs.