Rates Vol Watch: KR vol – Long JP vs KR frontend payers

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Rates Vol Watch: KR vol – Long JP vs KR frontend payers

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Rates Vol Watch

KR vol – Long JP vs KR frontend payers

Macro backdrop and policy expectations 08 June 2026

Since our YA publication (see Global rates vol in '26 from 26 Nov ’26), Korea's economic Rates Research

growth has continued to surprise to the upside, mostly due to global AI demand & United States

surging semiconductors prices. Besides external sectors, the strong rally of Korea's

Bruno Braizinha, CFA

equity market also bodes well for a sustained private consumption recovery. Our Rates Strategist

economists have recently boosted GDP forecast to 3.1% (vs. 1% in '25), while average BofAS

bruno.braizinha@bofa.com

headline CPI inflation will likely rise to 2.7% (vs. 2.1% in '25) on higher energy costs.

Janice Xue

Emerging Asia FI/FX Strategist

For the policy trajectory, our economists now expect two hikes to be delivered in 3Q and Merrill Lynch (Hong Kong)

4Q this year. At the May MPB meeting, the BoK kept rates steady but made a clear janice.xue@bofa.com

hawkish pivot. There were two dissenting votes in favor of rate hikes, and the median Eleanor Xiao

Rates Strategist

dots show two hikes in the next six months – a significant upward shift vs. their Feb BofAS

projections. The press conference tone was unequivocal, highlighting how recent eleanor.xiao@bofa.com

developments in inflation, growth, FX & housing market all point toward the same policy

tightening direction (see May BoK Review from 28 May ‘26).

Expectation on KTB yield and curve… Glossary: ATM – At the money

Given our new macroeconomic & policy rate outlook, we significantly revise our KTB BE – Breakeven

yield forecasts higher in Exhibit 1. We expect KTB yields to stay elevated in the near- BoK – Bank of Korea