[Bond Market Closing]Yields Fall on Korean Government Bonds as Investor Sentiment Improves Ahead of Central Bank Decision

(Seoul=Yonhap Infomax) Jee Hyun Son – Yields on South Korean government bonds declined on the 21st, as risk appetite remained subdued and foreign investors increased their net purchases of 10-year treasury futures, amplifying intraday gains.

Robust buying by domestic institutions in the credit market further supported an improvement in investor sentiment.

According to the Seoul bond market, the yield on the benchmark 3-year government bond closed at 2.872%, down 3.6 basis points from the previous session. The 10-year government bond yield ended at 3.271%, a decrease of 5.4 basis points. The 3-year treasury futures rose 13 ticks to 105.90, with foreigners net selling 1,515 contracts and securities firms net buying 2,210 contracts. The 10-year treasury futures surged 59 ticks to 114.37, as foreign investors bought 6,501 contracts and securities firms sold 2,873 contracts. The 30-year treasury futures gained 0.54 points to 133.84, with 252 contracts traded.

Market Outlook

Market participants expect investor sentiment to remain somewhat improved as the market awaits next week’s November Monetary Policy Board meeting of the Bank of Korea.

“The key will be how much the Bank of Korea revises up its growth outlook for next year in the November economic forecast. If the projection is raised above 1.9%, it could weigh further on the market,” said a bond dealer at a securities firm.

Another bond dealer noted, “Foreigners are buying short-term government and monetary stabilization bonds, while domestic institutions are supporting the credit market. This has capped the upside in yields and improved sentiment.”

Intraday Developments

At the open, the yield on the 3-year benchmark issue (25-4) started at 2.874%, down 3.8 basis points from the previous day’s private evaluation. The 10-year benchmark issue (25-5) opened at 3.284%, down 4.8 basis points.

Overnight, the US 2-year Treasury yield fell 5.9 basis points to 3.5350%, and the 10-year yield dropped 5.3 basis points to 4.0860%.

The US Treasury market rallied as the September unemployment rate rose to a four-year high, reviving expectations for a rate cut at the December FOMC meeting.

Renewed concerns over an ‘artificial intelligence (AI) bubble’ also dampened risk appetite, triggering a sharp sell-off on Wall Street, with the Nasdaq falling more than 2%.

Federal Reserve Governor Lisa Cook, in a speech at Georgetown University, warned of the risk of a sharp correction in asset prices, noting, “Valuations across several markets—including equities, corporate bonds, leveraged loans, and housing—are elevated relative to historical benchmarks. My impression is that the likelihood of a significant decline in asset prices has increased.”

Reflecting the overnight rally in US Treasuries, Korean treasury futures also opened higher, with foreign investors maintaining net buying momentum.

Shortly after the open, Korea Customs Service reported that exports for November 1-20 rose 8.2% year-on-year, led by strong gains of over 20% in key items such as semiconductors and passenger vehicles.

However, the KOSPI index fell more than 3% in response to the overnight Nasdaq plunge, while the USD/KRW exchange rate climbed to the mid-1,470 won range.

In the afternoon, foreign investors further increased their net purchases of treasury futures, expanding the rally. The 10-year treasury futures at one point rose by 60 ticks.

BNP Paribas forecast that the Bank of Korea will cut its policy rate by 25 basis points this month, projecting a terminal rate of 2.25%.

Near the close of Asian trading, US Treasury yields edged up by around 1 basis point.

Trading volume for 3-year treasury futures reached 166,857 contracts, with open interest down by 3,667 contracts. For 10-year treasury futures, 84,466 contracts were traded, and open interest fell by 2,016 contracts.

Final Quotation Yields by Korea Financial Investment Association (November 21)

jhson1@yna.co.kr

(End)

Copyright (c) Yonhap Infomax. All rights reserved. Unauthorized reproduction, redistribution, or use for AI training is strictly prohibited.