The bond market in the Republic of Korea (Korea) is one of the largest markets in Asia. Various reforms are behind this rapid development, including gradual market liberalization. All fixed-income instruments are available to foreign investors. The government continues to issue Treasury bonds on a regular basis with maturities of 3-, 5- and 10 years. The 3-year is the most liquid. Foreign demand for longer-dated bonds led to the gradual increase of longer-term notes. In January 2006, Korea began issuing 20-year government bonds to satisfy requests from pension funds and insurance companies. The government is planning to issue more longer-dated bonds to extend the yield curve beyond the 3- to 5-year concentration.

Bonds in Korea can be classified into three main types depending on issuer: government bonds, special public bonds, and corporate bonds. The government bond market includes Treasury Bonds, Foreign Exchange Stabilization Bonds, and National Housing Bonds. Government bonds are the most traded asset class and form the basis for benchmark yields.

Over-the-counter trading dominates bond trading, representing about 80% of all trades, with financial institutions or institutional investors purchasing most of the debt. Most bond issues are also listed on the Korea Exchange.

Securitization has become an important financing tool in Korea since it was first used to restructure banks’ nonperforming loans following the 1997/98 Asian financial crisis. Collateralized bond obligations and collateralized debt obligations (CDOs) accounted for the bulk of securitized transactions. The market has since expanded to include securitization of residential mortgages, credit card receivables, future trade receivables, and various types of leases and loans.