Foreign capital flows in South Korea's financial markets are showing mixed trends. While funds are exiting the stock market, there is a significant influx of buying in the treasury futures market. This foreign buying pressure has contributed to a decline in government bond yields.
On October 16, the Korea Financial Investment Association reported that the yield on three-year government bonds closed at 3.854%, down 1.3 basis points (1 bp = 0.01 percentage points) from the previous trading day. The yield on ten-year bonds fell by 1.1 basis points to 4.182%.
The recent strength in the domestic bond market is largely attributed to foreign purchases of treasury futures. On this day, foreign investors net bought 13,683 contracts of three-year treasury futures and 6,283 contracts of ten-year treasury futures. Cumulatively, this month, net purchases have reached approximately 79,000 contracts for three-year futures and 19,000 contracts for ten-year futures.
As foreign buying intensifies, government bond yields are declining rapidly. This week alone, the yield on three-year bonds has dropped by about 13 basis points, while the yield on ten-year bonds has decreased by approximately 21 basis points. The yield on three-year bonds, which was above 4% at the end of September, has now fallen to the 3.8% range.
In contrast, the domestic stock market continues to face selling pressure from foreign investors. According to the Bank of Korea's report on 'International Financial and Foreign Exchange Market Trends,' foreign securities investment funds experienced a net outflow of $19.97 billion in September. Of this amount, $14.16 billion was withdrawn from stocks, marking a shift to net outflow for the first time in a month.
The Bank of Korea analyzed that rising global long-term interest rates and concerns over a slowdown in artificial intelligence (AI) investments have dampened foreign investor sentiment in the stock market. Bond funds also saw a net outflow of $5.81 billion due to maturing government bonds and sluggish reinvestment.
While foreign capital is exiting the stock and bond spot markets, buying in the treasury futures market is expanding. It is expected that foreign buying pressure in treasury futures will continue for the time being. An analysis of the top 10 instances of large-scale net buying of three-year treasury futures by foreigners shows that in eight cases, net buying continued for the following five trading days.
Im Jae-kyun, a researcher at KB Securities, stated, "There have been many instances where foreign investors continued their buying momentum after large-scale net purchases. Considering the existing demand from Commodity Trading Advisors (CTAs), it is anticipated that foreign net buying of treasury futures will persist in the short term, leading to further declines in yields."
* This article has been translated by AI.
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