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. The decline in yields was more pronounced at the longer end of the curve resulting in a slight inversion of the Republic of Korea's yield curve. Yields fell during the review period due to heightened expectations of a rate cut by the Bank of Korea in its July monetary policy meeting and further rate cuts before the year ends.

Size and Composition

The size of the Republic of Korea's LCY bond market rose 2.4% quarter-on-quarter (q-o-q) to KRW2,332 trillion (USD2 trillion) at the end of June from KRW2,277 trillion at the end of March. The growth was led by both the government and corporate segments. The outstanding size of LCY government bond market expanded 1.7% q-o-q in the second quarter of 2019 to KRW946 trillion, largely driven by rise in central government bonds as the government continued with its frontloading policy in 2019. The LCY corporate bond market posted growth of 2.9% q-o-q to reach KRW1.4 trillion at the end of June, primarily due to higher issuance during the quarter as companies took advantage of declining interest rates.

Policy, Institutional and Regulatory Developments

In August, the National Assembly passed the 2019 supplementary budget to help boost the economy and improve public safety. The supplementary budget was KRW856.8 billion short of the KRW6.7 trillion budget submitted in April. In the same month, the Bank of Korea, Financial Services Commission, and Financial Supervisory Service held a meeting to discuss recent developments in financial markets and pledged cooperation to address any sudden volatility.