"Bond Market Interest Rate Differentiation in the Second Half... Base Rate Hike Expected to Accelerate"

Financial Investment Association Hosts Online Webinar

[Asia Economy Reporter Minji Lee] As discussions on monetary policy normalization intensify, the bond market in the second half of the year is expected to show differentiated interest rates by maturity.

At the online webinar titled ‘2021 Second Half Bond Market Outlook and ESG Bond Market Status’ hosted by the Korea Financial Investment Association on the 24th, Shin Eol, Research Fellow at SK Securities, forecasted, “Monetary policy normalization is imminent, which will drive the trend in the bond market in the second half of the year, characterized by pronounced differentiation in interest rates by maturity.”

Researcher Shin predicted that the Bank of Korea is likely to bring forward the timing of interest rate hikes more than expected. He said, “Due to the acceleration of vaccine distribution, growing confidence in economic recovery, and increased caution regarding financial imbalances, the timing of rate hikes is likely to be advanced beyond initial expectations.”

He added, “The rise in market interest rates will mainly occur in the short- and medium-term maturities, while the upper bound of long-term interest rates is expected to remain relatively stable. Until the third quarter of this year, the pressure for curve flattening will clearly dominate, but after mid-fourth quarter, a general downward reversal of interest rates will ease this pressure.”

Han Kwang-yeol, Team Leader at NH Investment & Securities, who presented on the current status and investment strategies of the domestic ESG bond market, stated, “The domestic ESG bond market has significantly expanded this year as private companies have increased issuance. Considering the strong issuance willingness of companies and institutions and the high investment demand from asset management institutions including pension funds, it is expected to continue growing steadily.”

Meanwhile, he noted, “In the cases of the US and China, the ESG bond markets have grown even more steeply. For Korea to achieve quantitative and qualitative advancement, policy support such as strengthening issuers’ disclosure obligations and lowering risk coefficients when investing in ESG bonds is necessary.”

He further emphasized, “Greenwashing risks may become prominent domestically in the future. From an investor’s perspective, unlike general bond investments, it is essential to thoroughly review the issuance purpose, project details, and fund management system of ESG bonds. Establishing an investment process for this purpose (ESG bond investment plan formulation → universe composition → issuance verification → actual investment → post-management) is necessary.”

This content was produced with the assistance of AI translation services.