Retail Bond Buys Hit 3.19 Trillion Won Amid Rate Hikes
Retail investors bought 3.19 trillion won in bonds last month as foreign investors sold 839 billion won.
Retail investors bought 3.19 trillion won in bonds in August. This figure represents a net purchase of $2.38 billion. The buying activity increased by 15 billion won compared to the previous month. Cumulative net purchases through August reached 22.96 trillion won. Korean Treasury Bonds accounted for the largest share at 1.37 trillion won. Bank bonds and special bonds followed in volume.
Foreign investors sold a net 839 billion won of South Korean bonds. This marks a reversal from net purchases of 1.81 trillion won in July. Foreign holdings fell by 6.4 trillion won to 344.7 trillion won. The won strengthened during this period. Currency swap rates rose, reducing arbitrage incentives.
Yields Hit Record Highs
The yield on 30-year Korean Treasury Bonds reached 4.751% on August 18. This level set a record high during intraday trading. The three-year yield stood at 3.838% at month-end. This figure is up 8.0 basis points from July. The 10-year yield rose 5.2 basis points to 4.313%. These moves reflect the Bank of Korea’s rate-hike cycle.
The Bank of Korea raised the base rate by 25 basis points on August 27. The new rate is 3.00%, up from 2.75%. This was the second consecutive rate hike. Bond yields initially declined on safe-haven demand. They turned higher from mid-month due to supply concerns. GN markets/rates (en-US) notes this policy shift.
Issuance Volume Declines Sharply
Total bond issuance in August was 76.6 trillion won. This is down 8.8 trillion won from the previous month. Korean Treasury Bond issuance increased by 7.1 trillion won. Financial bonds and corporate bonds saw declines. Corporate bond issuance totaled 4.5 trillion won. This figure dropped by 5.9 trillion won from July.
The participation rate in demand forecasts fell to 210.4%. This is down from 541.1% a year earlier. The decline amounts to 330.7 percentage points. Investor sentiment in the corporate bond market weakened significantly. Over-the-counter bond trading volume fell by 58.4 trillion won. The new total is 387 trillion won for the month.
Market Activity Slows Down
Average daily trading volume declined by 900 billion won. The new average is 19.3 trillion won per day. The yield on certificates of deposit rose 17 basis points. The new CD yield is 3.12%. This change followed the recent base rate hike. Short-term funding conditions tightened accordingly.
