Market Summary

Yield Movements

Between 31 August and 30 October, the Republic of Korea's local currency (LCY) government bond yield curve barely moved. Government bond yields remained range-bound during the review period, with yield changes almost negligible. Yields at the shorter-end were almost unchanged amid expectations of the Bank of Korea maintaining the base rate in its October monetary policy meeting. Meanwhile, yield movements in the rest of the curve were minimal given continued supply-demand imbalances in the government bond market and uncertainties in the economic policy measures of major developing economies.

Size and Composition

The size of the Republic of Korea's LCY bond market inched up 1.9% quarter-on-quarter (q-o-q) to KRW2,602.1 trillion (USD2,223.7 billion) at the end of September. The marginal growth was lower than the 3.1% q-o-q growth posted in the second quarter of 2020. Growth for the quarter continued to be mainly driven by the government sector which increased 3.0% q-o-q, while the corporate segment rose at a slower pace of 1.1% q-o-q. Compared with the same period in 2019, the Republic of Korea's domestic bond market rose 9.8% year-on-year, almost at par with the 9.5% year-on-year increase posted in the previous quarter.

Policy, Institutional and Regulatory Developments

On 22 September, the National Assembly passed the fourth supplementary budget of 2020 worth KRW7.8 trillion. This brings the aggregate amount of all four supplementary budgets to KRW62.2 trillion. The budget is expected to fund additional COVID-19 relief programs to support small businesses and low-income households.