Market Summary

Yield Movements

The Republic of Korea’s local currency (LCY) government bond yields surged for most tenors between 31 August and 15 October. Yields for tenors of less than one year were mostly unchanged, while the yields for tenors between 2 years and 50 years surged 38 basis points on average. Short-term government bond yields remained range-bound during the review period, following a spike in yields the week before the Bank of Korea’s monetary policy meeting on 26 August, when the central bank raised its base rate to 0.75%. Yields barely moved thereafter given expectations that the central bank would maintain its policy rate at its October monetary policy meeting. The rise in yields for tenors of 2 years and longer continued throughout the review period on heightened expectations of another rate hike before the year ends. Subsequently on its 25 November monetary policy meeting, the Bank of Korea raised its base rate by 25 basis points to 1.00%.

Size and Composition

The Republic of Korea’s LCY bond market grew 1.6% quarter-on-quarter (q-o-q) to reach a size of KRW2,799.9 trillion (USD2,364.6 billion) at the end of September, slower than the 2.3% q-o-q expansion posted in the previous quarter. The Republic of Korea’s LCY government bond market rose 1.9% q-o-q to KRW1,179.7 trillion; while the outstanding size of the Republic of Korea’s LCY corporate bond market inched up 1.4% q-o-q to KRW1,620.2 trillion. From the same period in 2020, the Republic of Korea’s bond market rose 7.6% year-on-year, slower than the 7.9% year-on-year growth posted in the previous quarter.

Policy, Institutional, and Regulatory Developments

On 3 September, the Government of the Republic of Korea passed for approval to the National Assembly its 2022 budget proposal of KRW604.4 trillion. The proposed budget is 8.3% higher than the original 2021 budget of KRW558.0 trillion, and almost at par with the revised KRW604.9 trillion budget that includes all supplementary budgets passed during the year. The budget aims to aid citizens and society in its recovery from the pandemic, promote inclusive growth, and prepare for a post-pandemic economy.