"South Korea's Government Bonds Maintain Safe Asset Status... Anxiety Spreads if Uncertainty Prolongs"

Yoon Yeosam, Meritz Securities Researcher

Despite the significant increase in financial market uncertainty following President Yoon Seok-yeol's declaration of 'martial law,' analysis suggests that Korean government bonds will maintain their status as safe-haven assets. However, if political uncertainty prolongs, financial market anxiety is expected to spread further. Financial authorities need to continue market intervention measures for the time being to prevent foreign investors from withdrawing.

On the 9th, Yoon Yeo-sam, a researcher at Meritz Securities, stated, "If the (political uncertainty caused by martial law) situation calms down quickly, the shock will be limited in the short term."

Researcher Yoon assessed that short-term uncertainty is higher compared to the impeachment of former President Park Geun-hye in the fourth quarter of 2016. The sharp rise in domestic interest rates and exchange rates in Q4 2016 was more due to the shock from the election of then-U.S. President Donald Trump than political instability.

Yoon explained, "At that time, foreign investors in government bond futures mainly sold KTB futures, but movements centered on long-term KTB futures were limited because signs of improvement in Korea's growth rate and inflation appeared from Q4, leading to expectations of an upward shift in the economic cycle."

However, the Korean economy, which is consumption-driven, is currently facing a difficult phase. Researcher Yoon emphasized that maintaining stability through policy responses is important due to the high possibility of short-term volatility in exchange rates and stock markets today.

In fact, following the declaration of martial law, financial authorities have continuously held emergency meetings to communicate with the market. Foreign investors, who were feared to withdraw from the government bond futures market, have instead maintained strong buying pressure, contributing to the stability of the domestic financial market. In the spot market as well, foreign investors are mostly maintaining their holdings.

Yoon stated, "After last week's F4 meeting, measures such as unlimited liquidity supply have been implemented, and the current short-term funding market stability is being maintained more stably compared to 2016," adding, "Even if government intervention in the foreign exchange and funding markets incurs some costs, it is important to maintain the current level."

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