Market Summary

Yield Movements

Between 31 August and 15 October, local currency government (LCY) bond yields in the Republic of Korea rose for all tenors, averaging an increase of 10 basis points. The rise in yields toward the end of the review period, on expectations of a policy rate hike by the Bank of Korea, reversed the downward trend in place since May. Yields had fallen since May as the market no longer expected the Bank of Korea to change its monetary policy stance given the possibility of an economic slowdown and subdued inflation. Yields rose further in early October due to the sharp rise in United States (US) Treasury yields.

Size and Composition

The Republic of Korea’s LCY bond market size was barely changed in the third quarter of 2018, marginally up 0.1% quarter-on-quarter (q-o-q) to KRW2,224 trillion (USD2.0 trillion) at the end of September from KRW2,221 trillion at the end of June. The minimal growth was solely driven by the corporate bond segment, which posted an increase of 0.9% q-o-q to reach a size of KRW1.3 trillion, while the government bond market declined 0.9% q-o-q to KRW928 trillion.

Policy, Institutional and Regulatory Developments

In October, the Government of the Republic of Korea announced measures to promote investment and boost employment, noting the slowdown in growth as investment and employment continued to be weak. To help economic growth regain momentum, the government plans to promote private sector investment, increase public investment, pursue innovation-driven growth, and support the job market.