Market Summary

Yield Movements

Between 1 March and 15 May, local currency (LCY) government bond yields in the Republic of Korea rose for all tenors, albeit marginally. Yields in the middle to longer-end of the curve showed a downward trend from 1 March through the middle of April as geopolitical tensions eased. A gradual rise in yields was observed from the middle of April, reversing the earlier downward trend. Upward pressure on yields stemmed from the sustained rise in United States (US) interest rates; and as uncertainty over the possibility and timing of a rate hike by the Bank of Korea remain.

Size and Composition

The Republic of Korea’s LCY bond market grew 1.4% quarter-on-quarter (q-o-q) in  the first quarter of 2018 to reach an outstanding size of KRW2,187 trillion (USD2,056 billion) at the end of March. The quarterly growth was solely driven by the Republic of Korea’s government bond market as the stock of corporate bonds fell. The Republic of Korea’s LCY government bond market posted robust growth of 3.7% q-o-q in the first quarter of 2018 with outstanding bonds amounting to KRW915 trillion. Meanwhile, LCY corporate bonds dipped slightly, falling 0.1% q-o-q to KRW1,271 trillion.

Policy, Institutional and Regulatory Developments

In April, the Government of the Republic of Korea drafted a KRW3.9 trillion supplementary budget proposal to fund programs to support young adult employment and the promotion of local economies. The government plans to finance the budget with KRW2.6 trillion from 2017 fiscal account surpluses and the remaining KRW1.3 trillion from public fund surpluses.