Last month, Treasury bond yields rose as the Bank of Korea (BOK) kept its policy rate unchanged and expectations for a future cut diminished.
The Korea Financial Investment Association announced "October over-the-counter bond market trends" on the 12th. At the end of last month, the 3-year Treasury yield was 2.716% per year, up 13.4 bp (1 bp = 0.01 percentage point) from the end of the previous month.
Over the same period, long-term yields also rose across the board. Yields increased from the end of the previous month across all maturities, including the 5-year (12.1 bp, hereafter the amount of the yield increase), 10-year (11.0 bp), 20-year (15.2 bp), 30-year (14.4 bp), and 50-year (11.1 bp).
Until mid-month, renewed U.S.-China trade tensions and controversy over bad loans at U.S. regional banks pushed Treasury yields lower through mid-month.
However, on the 24th, with the Bank of Korea (BOK) Monetary Policy Committee meeting deciding to hold rates, expectations for a rate cut eased. In addition, by month-end, yields rose on the back of an upward revision to third-quarter gross domestic product (GDP) growth and expanded risk appetite following a stock market rally.
Bond issuance and distribution also declined last month. October bond issuance totaled 78 trillion won, down 16.2 trillion won from the previous month. Corporate bond issuance came to 9.8 trillion won, down 6.3 trillion won from the previous month.
The long Chuseok holiday reduced trading days, and institutional investors gradually entered the year-end settlement of account season.
Over-the-counter bond trading volume fell to 362.2 trillion won, down 154.8 trillion won from the previous month. The average daily trading volume was 20.1 trillion won, down 3.4 trillion won from the previous month.
Net purchases by individuals were 1.7 trillion won, and net purchases by foreigners were 2.2 trillion won, down 2.1 trillion won and 11.2 trillion won, respectively, from the previous month.
In particular, the association said the sharp decline in foreigners' net purchases was due to "a stronger preference for risk assets amid a rising domestic stock market and reduced incentives for arbitrage."