Political Uncertainty and Its Impact on the Market

Recent political events in Korea, including the declaration and lifting of martial law, and the impeachment motion, have raised concerns about the potential impact on the market. Historically, such events have had limited short-term effects on the bond market. For instance, following the impeachment motions against Presidents Roh in 2004 and Park in 2016, market interest rates were more influenced by the credit card loan crisis and expectations for economic improvement, respectively.

However, the current political unrest is likely to have mid/long-term implications, particularly as the Bank of Korea (BOK) has recently prioritized addressing economic slowdown concerns. This heightened political uncertainty could dampen fiscal spending expectations, increasing the pressure on the BOK to stimulate the economy through more aggressive monetary policies.

Employment Data and the December FOMC Meeting

The November employment data in the U.S. showed a jobless rate exceeding market expectations, reaching a level close to the July shock. Despite temporary factors like hurricanes and strikes influencing October's weak employment indicators, the November data indicates a path to normalization, as anticipated by the Fed. Given this trend and the political pressure following a new administration, we maintain our forecast of a 25bp rate cut at the December FOMC meeting. This decision is expected to help stabilize U.S. Treasury bond (TB) yields through the year-end.

The Solid KTB Market Amidst Political Turmoil

Despite the heightened price pressure following a sharp drop in Korean Treasury Bond (KTB) yields, KTB prices remain solid due to expectations of fiscal spending. This suggests that anticipated price adjustments are unlikely, reflecting the market's resilience amidst political uncertainty.