Samsung Securities "Domestic Bond Market Needs Time Until Low-Price Buying Demand Inflows"

Stable interest rates unlikely in next 2-3 months
Expect inflow of bargain buying if clear signs of easing inflation pressure appear

[Asia Economy Reporter Hwang Yoon-joo] Samsung Securities stated that if clear signs of easing inflationary pressures emerge, it can expect an influx of bargain buying in the bond market. However, it forecasted that a rapid stabilization of interest rates would be difficult to expect over the next 2 to 3 months.

Kim Ji-man, Senior Research Fellow at Samsung Securities, analyzed, "Domestic bond yields continued to rise this week, and there are no signs of stabilization yet. For the current upward trend in interest rates to subside, a change in inflation expectations is necessary."

Considering the inflation items identified so far, Kim estimated that the January inflation rate would be lower than expected. This is because items such as agricultural products and gas station fuel costs are expected to show a slight month-on-month decrease. The average month-on-month inflation rate for January over the past 10 years was 0.48%.

Senior Research Fellow Kim projected, "Taking into account the Federal Reserve's hawkish (monetary tightening) announcements and reflecting the forecast that Korea's base interest rate will be raised twice more within the year (up to 1.75%), the 3-year government bond yield could rise to around 2.3%, and the 10-year government bond yield could increase to 2.7?2.8%."

As evidence, he cited the case in the first half of 2018 when the base interest rate increase to 1.75% was priced in advance, resulting in the 3-year government bond yield rising to 2.316% (February 20, 2018) and the 10-year government bond yield reaching 2.814% (May 15, 2018). The February government bond issuance plan is about 1.5 trillion KRW higher than in January, influenced by an increase of 11 trillion KRW in bond issuance due to supplementary budget formulation.

Senior Research Fellow Kim analyzed, "While the possibility of supplementary budgets continuing after the presidential election is a variable, it is still difficult to view government bond issuance as a major burden factor."

He explained, "Even when combining the main budget and supplementary budgets, the government bond issuance scale does not exceed last year's level. Also, there is a possibility that last year's excess tax revenue, reported to be over 10 trillion KRW, could be utilized after the settlement."

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