Market Summary

Yield Movements

Between 28 February and 15 May, the Republic of Korea's local currency government bond yield curve steepened as yields at the short-end fell, while yields at the long-end rose. Yields at the short-end of the curve fell following the 50 basis points cut to 0.75% by the Bank of Korea in its emergency monetary policy meeting on 16 March, to stabilize the financial market and in response to the impending economic impact of the coronavirus disease (COVID-19) pandemic. The Bank of Korea has also announced and implemented several measures to provide additional liquidity in the market. Meanwhile, yields continued to rise at the longer-end of the curve, fueled by bond supply concerns as the government passed two supplementary budgets to support various sectors affected by the pandemic.

Size and Composition

The Republic of Korea's LCY bond market rose 2.8% quarter-on-quarter (q-o-q) to reach a size of KRW2,476.2 trillion (USD2,032.1 billion) at the end of March. This was higher than the 1.6% q-o-q growth posted in the fourth quarter of 2019. Growth in the first quarter of 2020 was largely driven by the 4.2% q-o-q increase in the stock of government bonds, as issuance surged for the quarter. Meanwhile, the Republic of Korea's corporate bond segment grew at a slower pace of 1.9% q-o-q.

Policy, Institutional and Regulatory Developments

On 19 March, the Government of the Republic of Korea announced the launch of a more than KRW50 trillion financial support package to aid businesses and households affected by the COVID-19 pandemic. The package includes nine programs focused on (i) providing liquidity to small businesses; (ii) deferment and or suspension of loan and interest payments by small and medium-sized enterprises; and the (iii) creation of a bond market stabilization fund and equity market stabilization fund.