Foreign Public Funds to Reinvest 1 Trillion Won in Bond Market This Month

Partial Reinvestment After Selling Bonds Maturing in June
Foreign Central Banks, Sovereign Wealth Funds, and Other Long-Term Investors Buy
Domestic Bond Market Shows Strong Hold-and-Watch Sentiment

[Asia Economy Reporter Hwang Yoon-joo] In early June, foreign public funds that had sold a large volume of matured bonds in the domestic bond market repurchased nearly 1 trillion won worth of bonds. It is analyzed that foreign funds with a long-term investment nature are staying in the domestic bond market and observing amid high market volatility.

According to the Bank of Korea and financial authorities on the 21st, the balance of foreign holdings of domestic bonds, which had decreased by 5.1044 trillion won compared to the previous month until early June (1st to 10th), was tentatively counted to have increased after mid-June (11th to 20th).

As of June 14, the balance of foreign holdings of domestic bonds dropped to 220.0253 trillion won, the lowest level this month. Subsequently, buying demand flowed back in, increasing the balance to 223.8619 trillion won as of the previous day. A Bank of Korea official said, "Among the funds entering the bond market, about 1 trillion won is public funds with a strong long-term investment nature, such as foreign central banks and sovereign wealth funds," adding, "After securitizing matured bonds, some of the funds have been reinvested since after the 10th."

The bond market views the reinvestment by foreign public funds after bond securitization positively. Foreign investors in the domestic bond market are broadly divided into public funds with a long-term investment nature and private funds with a short-term investment nature. About 70% of foreign investors are public funds. They are particularly resilient to interest rate fluctuations or short-term exchange rate issues. Therefore, movements of foreign public funds are read as an important signal to gauge capital outflows.

However, it is considered premature to be complacent. The balance of foreign holdings of domestic bonds decreased by 1.9682 trillion won compared to the previous month (225.8301 trillion won). It is interpreted that the Federal Reserve's aggressive tightening policy has expanded market interest rate and exchange rate volatility, affecting the bond market. The Federal Reserve raised the benchmark interest rate by 0.75 percentage points on the 15th (local time).

An official from the Korea Financial Investment Association explained, "The Fed has hinted at the possibility of another 0.75 percentage point rate hike in July, so the highly volatile market is expected to continue for the time being," adding, "Since investors are liquidating assets in the stock and bond markets and then adopting a wait-and-see stance, monitoring the bond market is necessary."

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