Yields on Long-Term Government Bonds Surge in June; Corporate Bond Spreads Widen

Yields on South Korean government bonds saw a significant increase last month, particularly among ultra-long-term maturities.

According to the "June Over-the-Counter Bond Market Trends" report released by the Korea Financial Investment Association (KOFIA) today (July 10), the yield on 30-year government bonds stood at 4.351% at the end of last month, up 34.5 basis points (bp) (1bp = 0.01 percentage point) from the end of the previous month.

The yield on 50-year bonds rose by 34.7bp to 4.213% during the same period.

The 20-year bond yield also climbed 18.2bp to 4.270%.

In contrast, the 3-year bond yield fell by 2.8bp from the end of the previous month, while the 10-year bond yield saw a marginal increase of only 2.3bp.

KOFIA explained that the government bond market in June showed a "steepening" trend, where yields for maturities of 10 years or less remained largely stable, while yields for ultra-long-term bonds of 20 years or more rose sharply.

This is attributed to weakened investor sentiment toward long-term bonds, driven by the sharp rise in the won-dollar exchange rate, concerns over a potential base rate hike by the Bank of Korea's Monetary Policy Board in July, and supply-demand pressures for ultra-long-term bonds.

In the corporate bond market, credit spreads widened.

This indicates that market concerns regarding the credit risk of corporate bonds have intensified.

The credit spread for 3-year AA- rated corporate bonds reached 67bp, widening by 5bp from 62bp the previous month.

The spread for 3-year BBB- rated bonds, which are considered non-investment grade, also widened by 6bp to 649bp from 643bp in the previous month.

KOFIA analyzed that "the credit spreads for both AA- and BBB- rated bonds widened last month in the aftermath of the rehabilitation filing by JoongAng Group."

Corporate bond issuance reached 12.6 trillion won last month, an increase of 3.7 trillion won from the previous month.

However, enthusiasm for corporate bond demand forecasting has weakened compared to the previous year.

The total amount for corporate bond demand forecasting was 2.2 trillion won across 23 cases, a decrease of 220 billion won from the same month last year.

The amount of participation in demand forecasting was 8.557 trillion won, down 3.944 trillion won from a year ago.

The participation rate was 389.0%, down 127.6 percentage points from 516.6% in the same month last year.

Foreign holdings of domestic bonds continued to increase.

As of the end of June, the balance of foreign holdings of domestic bonds stood at 352.4 trillion won, an increase of 2.6 trillion won from the end of the previous month.

This accounted for 11.2% of the total outstanding bond balance.

Foreign investors net purchased 13.6 trillion won in domestic bonds last month.

While net purchases of government bonds decreased by 2.3 trillion won from the previous month, net purchases of Monetary Stabilization Bonds and other bonds increased by 300 billion won and 1.1 trillion won, respectively.

Since March, when capital inflows related to the World Government Bond Index (WGBI) began, the cumulative net purchase of government bonds by foreign investors has reached 35 trillion won.

On June 30 alone, foreign purchases amounted to 5 trillion won, approximately 2.2 times the daily average purchase amount over the past year.

Over-the-counter bond trading volume in June was 505.1 trillion won, an increase of 111.2 trillion won from the previous month.

The daily average trading volume was 24.1 trillion won, up 2.2 trillion won from the previous month.

The yield on Certificates of Deposit (CDs) was 2.92% at the end of June.

During June, 6 new Qualified Institutional Buyer (QIB) bonds were registered, totaling 3.5604 trillion won.

(Photo: Provided by Korea Financial Investment Association, Yonhap News)
※ Please note: This article was translated by AI and may contain errors.