Government bond rates in South Korea rose across all maturities last month, influenced by the Bank of Korea's consecutive interest rate hikes and rising long-term rates in major economies.
According to the Financial Investment Association's report on the 'Trends in the Over-the-Counter Bond Market for August 2026,' government bond rates at the end of August increased compared to the end of the previous month.
The three-year bond rate rose by 8.0 basis points to 3.838%, while the ten-year bond rate increased by 5.2 basis points to 4.313%. The thirty-year bond closed at 4.527%, up 2.0 basis points.
Additionally, the one-year bond rate was 3.441% (+7.6 basis points), the two-year bond was 3.696% (+4.6 basis points), the five-year bond was 4.053% (+3.8 basis points), the twenty-year bond was 4.490% (+2.7 basis points), and the fifty-year bond was 4.451% (+4.6 basis points).
At the beginning of the month, government bond rates fell due to expectations of easing geopolitical risks in the Middle East, a decline in international oil prices, and increased risk-averse demand following a sharp drop in the KOSPI. The consumer price index rose by 2.8% in July, which was below market expectations, alleviating concerns over further interest rate hikes.
However, after mid-August, foreign buying of government bond futures weakened, and the possibility of additional rate hikes by the Bank of Korea became more pronounced, leading to a reversal in the upward trend of rates.
Concerns over inflation and the burden of fiscal and government bond supply have caused long-term rates in major countries like the United States and Japan to rise, which in turn has led to a widening increase in domestic ultra-long-term bond rates.
The thirty-year government bond rate reached an all-time high of 4.751% during intraday trading on August 18. During the same period, the U.S. thirty-year bond rate also rose to 5.310%.
On August 27, the Bank of Korea's Monetary Policy Committee raised the benchmark interest rate from 2.75% to 3.00%, increasing pressure on domestic bond rates. This marked the second consecutive rate hike by the Bank of Korea.
The total amount of bond issuance decreased compared to the previous month. Last month, the total bond issuance was 76.54 trillion won, down 8.84 trillion won from 85.384 trillion won in July. Government bond issuance increased by 7.087 trillion won to 23.677 trillion won, but the issuance of special bonds, financial bonds, and corporate bonds decreased.
Corporate bond issuance fell to 4.513 trillion won, a decrease of 5.949 trillion won, or 56.9%, from 10.462 trillion won the previous month.
Demand forecasts for corporate bonds also weakened. Last month, there were 11 demand forecasts totaling 1.25 trillion won, with a participation amount of 2.63 trillion won, resulting in a participation rate of 210.4%. This is significantly lower than the participation rate of 541.1% in the same month last year.
The total trading volume in the over-the-counter bond market last month was 386.991 trillion won, a decrease of 58.411 trillion won from the previous month. The average daily trading volume was recorded at 19.349 trillion won.
By investor type, individuals net purchased 3.1891 trillion won in bonds. Individuals net bought 1.3694 trillion won in government bonds, 453.2 billion won in special bonds, 672.6 billion won in bank bonds, 306.9 billion won in other financial bonds, and 386.5 billion won in corporate bonds.
Foreign investors turned to net selling in the domestic bond market, with a net sale of 839 billion won. In the previous month, they had net purchased 1.812 trillion won, but in August, they showed a selling preference.
The foreign ownership balance of domestic bonds decreased by 6.4 trillion won to 344.7 trillion won compared to the end of the previous month. The Financial Investment Association analyzed that the strengthening of the won and the rise in currency swap (CRS) rates have reduced the incentive for foreign investors to engage in arbitrage with won-denominated bonds.
Meanwhile, the yield on certificates of deposit (CD) at the end of August was 3.12%, up 17 basis points from the previous month. The total issuance of CDs last month was 2.5 trillion won, a decrease of 1.6 trillion won from the previous month.
* This article has been translated by AI.
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