KRW 1y fwd 1s5s Steepener

Trade: KRW 1y fwd 1s5s Steepener: 
Last: 9.6bp 
Rolls to: 33bp (+23.4bp) ; 5y roll/range of 0.50 

KRW steepeners to fade the front end are currently attractive, given that risk premium for hikes should be more balanced further out the curve than just the immediate 1y1y point. Their first hike in November was largely dovish, and given that language in the BoK's policy outlook for 2018 remains 'accommodative', it is likely to see the hikes as gradual.

With headline inflation cooling from overshooting at 2.5% in November to a current 1.5%, and expected to be on the upper side of 1% for this year by the BoK, it is likely to see a pullback in immediate rate hike pricing. This view is also supported given that South Korean industrial figures and PMI rolling over recently, and that the KRW has materially appreciated over 10% to the USD and 5% to the Yuan in 2017. 

Although the curve has already steepened from its lows of 4-5bps, it's still at attractive enough levels to build steepeners. The one concern with steepeners with using something like a 5y point is that the KRW does have some beta to the global cycle for obvious reasons and given all the USD flattening, it is something to keep in mind. However, given that in recent history the curve has only inverted in recession, it seems reasonable to expect it to not move lower than 4-5 bp area for the near term.