Market Summary

Yield Movements

Between 28 February and 15 May, the Republic of Korea’s local currency (LCY) government bond yields rose across the curve amid rising global and domestic inflation, and monetary policy normalization by both the United States Federal Reserve and the Bank of Korea. Upward pressure on domestic yields also stemmed from bond oversupply concerns due to uncertainties on the fiscal policy of the newly elected government. However, concerns eased as the government announced in May that the financing of the second supplementary budget would not involve the additional issuance of government bonds. This resulted to a decline in yields, slightly cushioning the surge in yields in March and April.

Size and Composition

The size of the Republic of Korea’s LCY bond market reached KRW2,898.1 trillion (USD2.4 trillion) at the end of March. Growth inched up to 2.0% quarter-on-quarter (q-o-q) in the first quarter of 2022 from 1.5% q-o-q in the previous quarter, largely driven by the government sector which rose 3.4% q-o-q, as the corporate segment posted marginal growth of 1.0% q-o-q. From the same period in 2021, the Republic of Korea’s LCY bond market grew 7.5% year-on-year, slightly lower than the 7.9% year-on-year increase posted in the fourth quarter of 2021.

Policy, Institutional and Regulatory Developments

On 29 May, the National Assembly passed the second supplementary budget of KRW62.0 trillion, which is to be largely allocated for programs involved in improving people’s livelihoods. The resulting 2022 budget is expected to generate a consolidated fiscal deficit equivalent to 3.3% of gross domestic product (GDP) and a government-debt-to-GDP ratio of 49.7%.