Impact of 'Big Step' Causes May Bond Trading Volume to Drop by 21 Trillion Won Compared to Previous Month

May Fed 'Big Step' Impact Lowers Trading Volume
Government Bond Issuance at 76.3 Trillion Won, Up 6.9 Trillion from Previous Month
Foreigners' Domestic Bond Holdings Increase to 225.83 Trillion Won

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] In May, the impact of the U.S. Federal Reserve's (Fed) 'Big Step' (raising the benchmark interest rate by 50 basis points at once) caused the domestic over-the-counter (OTC) bond trading volume to decrease by more than 20 trillion KRW compared to the previous month. The issuance scale of government bonds increased due to the supplementary budget formulation without deficit bonds, and foreign investors' holdings of domestic bonds rose due to bargain hunting.

The Korea Financial Investment Association announced on the 10th in its May 'OTC Bond Market Trends' report that the OTC bond trading volume last month was 383.1 trillion KRW, down 21 trillion KRW from the previous month. The average daily trading volume recorded 18.2 trillion KRW, a decrease of 1 trillion KRW compared to the previous month.

The bond issuance scale in May increased by 6.9 trillion KRW to 76.3 trillion KRW compared to the previous month (69.4 trillion KRW), as financial bonds and Monetary Stabilization Bonds increased. The outstanding issuance balance rose by 24.3 trillion KRW due to net issuance of government bonds, financial bonds, and special bonds, reaching 2,572.7 trillion KRW.

In May, domestic bond yields experienced increased volatility due to global inflationary pressures and interest rate hikes both domestically and internationally. Medium- to short-term yields rose amid concerns over economic slowdown, while long-term yields showed a slight decline. The slight drop in long-term yields is attributed to the supplementary budget formulation without deficit bonds. However, after mid-May, bond yields rose due to the Fed's accelerated tightening, the possibility of a global economic slowdown, and the Bank of Korea's interest rate hikes.

Foreign investors' holdings of domestic bonds in May recorded 225.83 trillion KRW, an increase of 2.6 trillion KRW from the previous month (223.23 trillion KRW). They net purchased a total of 6.6 trillion KRW, including 3.4 trillion KRW in government bonds, 2.3 trillion KRW in Monetary Stabilization Bonds, and 600 billion KRW in bank bonds. This is interpreted as taking advantage of higher yields (bond price declines) and a weaker exchange rate as buying opportunities.

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