(Jan 12): Compared to Asian peers, Malaysia's growth prospects are stronger, and its fiscal consolidation process is projected to be slower, dragging out the timeline.

This, in our view, is a recipe for relative underperformance of ringgit rates, especially in the shorter tenures where hike pricing could have more room to rise and bond demand by local banks are expected to weaken in 2022.

On the other hand, for South Korea and KRW rates, we think market pricing for four hikes in 2022 is overly aggressive and should be faded.

Our economist expects inflation in South Korea to peak in 1Q and thereafter, ease toward 1% in 4Q, thereby, raising the real policy rate and allowing Bank of Korea to hike just once in 1Q, before pausing for rest of the year.

We therefore initiate a relative-value idea to pay two-year ringgit interest rate swap (IRS) vs receive two-year KRW non-deliverable IRS.

Spread is currently 64 basis points (bps) and could widen to as much as 125bps in the coming months.