Market Summary

Yield Movements

Between 1 June and 15 August, local currency (LCY) government bond yields in the Republic of Korea fell for all tenors except the 3-month tenor, which was barely changed. Yields fell during the review period due to increased market expectations that the Bank of Korea would not raise its base rate this year. Recent domestic and global developments have weighed on the Republic of Korea’s economic growth prospects, further contributing to speculation that the Bank of Korea will maintain its current monetary policy.

Size and Composition

The Republic of Korea’s LCY bond market expanded to reach a size of KRW2,221 trillion (USD1,993 billion) at end June on 1.6% quarter-on-quarter (q-o-q) growth. The growth was driven by both its government and corporate bond segments. The Republic of Korea’s LCY government bond market rose 2.4% q-o-q in Q2 2018 to reach a size of KRW937 trillion; while its corporate bond market inched up 1.0% q-o-q to reach a size of KRW1,284 trillion at the end of June.

Policy, Institutional and Regulatory Developments

In July, the Ministry of Economy and Finance released its assessment of economic policies implemented in the first half of 2018 and the planned program for the second half. The Ministry of Economy and Finance reiterated its focus on consumption as a driver of growth through improved employment, wages, and innovation. For the remainder of the year, policies will continue to focus on creating new jobs and improving (and working on passage of) new regulations promoting innovation.