Market Summary

Yield Movements

Between 31 August and 15 October, local currency (LCY) government bond yields in the Republic of Korea rose for all tenors except the 3-month paper. The rise in yields was more pronounced at the longer end of the curve, with the yields of 10-year to 50-year securities up 21 bps on average. Yields rose during the review period as domestic bond yields tracked United States (US) Treasury yield movements, on positive news about trade talks between the People’s Republic of China (PRC) and the US. Market participants also took profits as the expected rate cut by the Bank of Korea on 16 October had already been priced in and on expectations of a pause in monetary easing for the year.

Size and Composition

The Republic of Korea’s LCY bond market posted growth of 2.0% quarter-on-quarter (q-o-q) to reach KRW2,378.2 trillion (USD1,987.9 billion) at the end of September. The growth was primarily driven by the 2.3% q-o-q rise in corporate bonds in Q3 2019 to reach KRW1.4 trillion on new issuance that remained relatively high. Meanwhile, the government bond segment rose at a slower pace of 1.6% q-o-q, largely driven by the 2.3% q-o-q rise in the stock of central government bonds.

Policy, Institutional and Regulatory Developments

On 29 August, the Government of the Republic of Korea submitted its 2020 budget totaling KRW513.5 trillion for approval. The planned budget entails a 9.3% increase in government spending over 2019 levels and is focused on helping boost the economy and promoting innovation. The main policies of the 2020 budget include increased spending for research and development; support for exports, investment, and consumption; strengthened social safety nets; improved quality of life; and strengthened national defense and diplomacy.