SK Securities "Domestic Bond Market Expected to Show Slightly Firm Trend Next Week"

[Asia Economy Reporter Hwang Yoon-joo] SK Securities forecasted a firm market trend for the domestic bond market next week. Although the Bank of Korea is highly likely to raise the base interest rate in May, it is judged that there will likely be an influx of standby buying demand due to the stabilization of investor sentiment.

On the 14th, Shin Eol, a researcher at SK Securities, stated, "Next week's weekly interest rates are expected to be 2.82~2.97% for 3-year government bonds, 3.02~3.20% for 5-year bonds, and 3.10~3.30% for 10-year bonds." The spread is forecasted to be 23~40bp for 3-year/10-year government bonds and -5~5bp for 5-year/30-year bonds.

The reasons for the firm bond market trend include ▲ no issuance of deficit government bonds and repayment of government bonds in the second supplementary budget ▲ increased signals of economic momentum slowdown highlighting a preference for safe assets ▲ inauguration of monetary and fiscal authorities.

Researcher Shin analyzed, "The plan for no issuance of deficit government bonds and repayment of government bonds in the second supplementary budget can be interpreted as the new government's policy manifestation of market stabilization intentions," adding, "The strength of standby buying demand due to investor sentiment stabilization is relatively superior to the possibility of an additional base rate hike in May."

Secondly, the expansion of economic slowdown signals and increased price volatility in asset markets are also considered favorable for the domestic bond market. Researcher Shin explained, "Since the beginning of the year, the burden of elevated interest rate levels has started to seriously affect other asset markets," adding, "Instead, it is heightening the preference for safe assets and putting a brake on the rising interest rate trend."

The inauguration of Lee Chang-yong as Governor of the Bank of Korea is also positive. Researcher Shin diagnosed, "The new governor expressed a willingness to manage risk signals related to increased volatility," adding, "In the bond market, this appears as a recovery of what was temporarily absent (such as verbal interventions by authorities)."

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