Market Summary

Yield Movements

Local currency government bond yields in the Republic of Korea rose for most tenors between 1 September and 10 November on expectations of a prolonged tight monetary stance from the United States Federal Reserve. Moreover, the Bank of Korea at its 19 October monetary policy meeting kept the base rate at 3.50% amid higher inflation and growth uncertainties due to the Federal Reserve’s signal of an extended period of elevated rates, rising household debt in the domestic market, and recent geopolitical tensions.

Local Currency Bond Market Size and Issuance

Local currency bonds outstanding in the Republic of Korea rose 2.4% quarter-on-quarter to KRW3,166.8 trillion at the end of the third quarter of 2023, driven by growth in both the government and corporate bond segments. Corporate bonds posted growth of 3.3% quarter-on-quarter, while government bonds outstanding rose at a slower pace of 1.2% quarter-on-quarter. Overall growth in the third quarter of 2023 moderated from the previous quarter due to a decline in quarterly issuances across all types of bonds.

Policy and Regulatory Developments

On 4 October, the Bank of Korea, the Financial Services Commission, and the Financial Supervisory Service announced the Central Bank Digital Currency pilot project for the development of a future monetary system. The Bank for International Settlements provided technical advice. The project is intended to assess the possibility of a future monetary system where commercial banks will utilize a wholesale digital currency for interbank fund transfers and final settlements among financial institutions.