Korean Government Bond Yields on the Rise

Despite the Bank of Korea's recent base rate cut and Korea's successful inclusion in the World Government Bond Index (WGBI), domestic government bond yields have increased over the past month. This rise is largely attributed to expectations of fiscal expansion policies following the U.S. presidential election.

According to the October Over-the-Counter Bond Market Trends report released by the Korea Financial Investment Association (KOFIA) on November 8, the yield on 3-year government bonds rose by 11.1 basis points (bp) to 2.936% at the end of last month. Similarly, yields on 5-year and 10-year government bonds also increased by 11.1bp and 10.8bp respectively, reaching 2.998% and 3.100%.

A KOFIA official commented, "As candidates emphasized fiscal expansion policies during the U.S. presidential election, the expectation of increased government bond issuance led to a rise in yields across all segments of Korean government bonds compared to September."

The bond issuance volume last month was 87.8 trillion won, an increase of 10.8 trillion won from September. Notably, corporate bond issuance surged by 6 trillion won, reaching 16.1 trillion won, as many companies refinanced at lower rates following the Bank of Korea's base rate cut.

The over-the-counter bond trading volume last month stood at 423.2 trillion won, down 3.2 trillion won from the previous month. The average daily trading volume last month was 21.2 trillion won, a decrease of 2.5 trillion won.

The net purchase of bonds by foreign investors last month was 13.6 trillion won, slightly down from 14.9 trillion won in September. However, the net purchase of other bonds, including special bank bonds, by foreign investors reached a record high of 5.123 trillion won.

A KOFIA official explained, "The net purchase by foreign investors has been expanding significantly over the past three months," adding, "The net issuance of monetary stabilization bonds has decreased since September, and the investment attractiveness of special bank bonds has increased."