Hanwha Investment & Securities Analyst Predicts Limited Impact on Government Bond Yields

In light of recent political developments, an analyst at Hanwha Investment & Securities has forecasted that the impact of a martial law situation on government bond yields would be limited. The report, released on December 9th, aims to provide clarity on the potential market implications.

Kim Sung-soo, a researcher at Hanwha Investment & Securities, explained that both martial law and impeachment are events that have occurred or could occur within the current national system. "For a political shock to impact the market or national credibility, the event must occur outside the country's system and institutions or have a direct connection to fiscal and economic matters," he stated. This perspective is grounded in historical data and the legal framework governing such events in South Korea.

South Korea has experienced significant political events in the past, including the impeachment of President Roh Moo-hyun in 2004 and President Park Geun-hye in 2016. These events are critical to understanding the current market dynamics. In 2004, the impeachment situation lasted about two months without significant change in government bond yields. The focus at the time was on monetary policy, specifically expectations of a base rate cut. When the Bank of Korea lowered the base rate in August, the yields fell significantly.

In contrast, the impeachment situation in 2016 lasted about three months, and bond yields rose sharply just before the impeachment. This increase was attributed to overseas issues, specifically the election of Donald Trump, rather than domestic political factors. "Most national bond yields rose sharply from the point of Trump's election victory," Kim noted.

Last week, most government bond yields fell, indicating a relatively stable market despite the political turbulence. Kim assessed that the market was calmer than expected the day after the martial law situation. He observed that foreigners net sold 3-year government bond futures in the early session, but this was reduced during the day. Additionally, 10-year government bond futures maintained a net buying trend from the start to the end of the session.

Kim's report emphasized that both martial law and impeachment are possible events as defined by the judicial system. The president has the authority to declare martial law, and the National Assembly can impeach. These processes are conducted within the bounds of the law, ensuring that they do not pose an extralegal threat to market stability.