Market Summary

Yield Movements

Local currency (LCY) government bond yields in the Republic of Korea rose across all tenors between 2 February and 29 May, reflecting the Bank of Korea's (BOK) increasingly hawkish policy stance. The BOK left the base rate unchanged in its February and April meetings, noting that it would continue to assess the impact of the Middle East conflict on inflation, growth, and financial markets. While the BOK continued to maintain the base rate at its 28 May meeting, it also signaled the onset of future rate hikes as inflationary pressures persist.

Local Currency Bond Market Size and Issuance

Total LCY bond outstanding in the Republic of Korea reached KRW3.5 trillion at the end of March. Growth moderated to 0.6% quarter-on-quarter (q-o-q) in the first quarter of 2026 from 1.4% q-o-q in the previous quarter due to reduced corporate issuance. Corporate bond issuance contracted 22.1% q-o-q as higher bond yields dampened funding demand, while government bond issuance surged 40.4% q-o-q in line with the government's front-loading policy.

Sustainable Bond Market

The Republic of Korea's sustainable bond market declined 2.0% q-o-q to USD184.0 billion at the end of March as maturities exceeded new issuance. Social bonds and green bonds continued to dominate the total sustainable bond market with shares of 54.2% and 29.2%, respectively. Sustainable bond issuance rose 7.2% q-o-q to USD11.2 billion, largely driven by higher public sector issuances of green and social bonds.