South Korean government bond yields fell on the 21st, led by short- and medium-term maturities, while long-term yields showed mixed movements and ultra-long yields rose, steepening the yield curve. Bond buying dominated from a supply-demand perspective, driven by execution funds following the Bank of Korea's Monetary Policy Committee meeting and purchasing activity from certain corporations. The 3-year Korea Treasury Bond (KTB) yield closed 2.8 basis points lower at 3.867%, the 10-year yield fell 0.8bp to 4.328%, and the 30-year yield rose 4.4bp to 4.564%, according to bond market data.
KTB Futures Record Gains as Foreign Investors Buy 3-Year Contracts
3-year KTB futures rose 12 ticks to 102.88. Foreign investors net purchased 7,264 contracts, while banks net sold 8,099 contracts. 10-year KTB futures climbed 13 ticks to 105.18, with foreign investors selling 1,460 contracts and financial investment firms buying 1,536 contracts. Trading volumes reached approximately 167,000 contracts for 3-year futures and 81,000 contracts for 10-year futures. Open interest increased by roughly 9,700 contracts in 3-year futures and 3,591 contracts in 10-year futures.
Semiconductor Company Buying and Execution Funds Support Short-Term Bond Demand
Buying activity attributed to a semiconductor company, estimated to be SK Hynix, flowed into bonds with maturities of two years or less, improving sentiment in the short-term segment. Execution funds related to the Monetary Policy Committee meeting also contributed to demand. The interest rate swap (IRS) market showed strong receive (buy) sentiment, adding overall bullish pressure to the bond market. A bond dealer at a bank stated, "There was significant buying suspected to be from Hynix, and execution funds following the Monetary Policy Committee were added. However, caution ahead of the GDP release will make it difficult to establish a clear direction."
Dollar-Won Exchange Rate Falls for Sixth Consecutive Session
The dollar-won exchange rate declined 5.00 won to close at 1,463.40 won, marking the sixth consecutive trading day of declines based on Seoul market closing prices. The currency movement provided favorable conditions for the bond market. The Seoul bond market showed a flat trend at the opening of the session on the 21st. External sentiment was negative, with Brent crude oil prices rising more than 1% overnight amid heightened concerns over escalating conflict between the United States and Iran. UK gilt yields on 10-year bonds surpassed 5% after newly appointed Prime Minister Andy Burnham emphasized fiscal flexibility, showing weakness. However, South Korean bond yields saw some reversal of recent weakness as bargain buying emerged near 3.9%, considered the upper range for 3-year bonds.
Bond Dealers Anticipate Cautious Trading Ahead of Q2 GDP Release
The 20-year KTB was auctioned at a yield of 4.530% for 400 billion won, with bids totaling 1.352 trillion won. Market participants expect both cautious sentiment ahead of the second-quarter growth rate announcement and favorable supply-demand conditions to appear on the following day. A bond dealer at a securities firm said, "The favorable atmosphere for the short-term segment will continue tomorrow, but GDP caution-related volume is likely to emerge as the afternoon progresses."
FAQ
What caused South Korean bond yields to fall on the 21st?
Bond yields fell primarily due to buyer dominance from execution funds following the Bank of Korea's Monetary Policy Committee meeting and purchasing activity from certain corporations, including a semiconductor company suspected to be SK Hynix. The 3-year KTB yield dropped 2.8 basis points to 3.867%.
How did foreign investors participate in the KTB futures market on the 21st?
Foreign investors net purchased 7,264 contracts in 3-year KTB futures, which rose 12 ticks to 102.88. In the 10-year futures market, foreign investors net sold 1,460 contracts, while the contract price increased 13 ticks to 105.18.
