The Seoul bond market is forecast to fluctuate during the week of July 6-10, with investors closely monitoring domestic stock market movements and the dollar-won exchange rate. The forecast reflects recent patterns where bonds have shown strength when KOSPI volatility intensifies and stocks undergo significant corrections. While the dollar-won exchange rate declined from the 1,550 won level to around 1,530 won over the past weekend, high exchange rates continue to act as a negative factor for the bond market. Starting July 6, Seoul's foreign exchange market will operate on a 24-hour basis from 6am to 6am the next day, with market participants watching whether offshore non-deliverable forward (NDF) transactions will flow into the onshore market over time.
Seoul Bond Market Tracks Stock Volatility and Exchange Rate Movements
The bond market is expected to maintain a cautious stance 10 days ahead of the Bank of Korea (BOK) Monetary Policy Committee meeting, which will mark the start of full-scale interest rate hikes. Recent trading has shown bonds gaining strength during periods of heightened KOSPI volatility and significant stock market corrections, creating a risk-aversion pattern that market observers have noted in recent sessions.
The dollar-won exchange rate remains a key focus despite its recent decline. High exchange rates continue to weigh on the bond market as a negative factor. The implementation of 24-hour foreign exchange trading starting July 6 at 6am introduces a new market structure, with the critical question being whether offshore NDF transactions will gradually flow into the onshore market.
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Samsung Electronics Earnings and US FOMC Minutes Scheduled for Release
Samsung Electronics will release preliminary earnings results on July 7. The US Federal Open Market Committee (FOMC) minutes from the June meeting are scheduled for release early morning on July 9.
Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol will attend a Cabinet meeting on July 7 and participate in an emergency economic headquarters meeting combined with a ministerial meeting on economic and industrial competitiveness enhancement on July 8.
The International Monetary Fund (IMF) will publish its July World Economic Outlook on the evening of July 8. Market attention is focused on how much the IMF will raise its growth forecast for South Korea this year from the 1.9% projection presented in April.
The Bank of Korea will release May balance of payments data on July 8 and June financial market trends on July 9. Household loans, centered on credit loans, are expected to have increased significantly amid expanded stock market volatility.
Among external variables, the Reserve Bank of New Zealand (RBNZ) interest rate decision is scheduled for July 8 in addition to the FOMC minutes.
On the supply side, a 3.3 trillion won auction of 3-year government bonds scheduled for July 6 draws attention.
Government Bond Yields Rise on Exchange Rate Spike to 1,559.20 Won
Last week, 3-year government bond yields stood at 3.745% on a closing basis, up 2.9 basis points from the previous week, while 10-year bond yields rose 7.8 basis points to 4.195%. The spread between 10-year and 3-year bonds widened from 40.1 basis points to 45 basis points, showing curve steepening with a bear steepening pattern.
The dollar-won exchange rate surged from early in the week as foreign investors continued steep selling in the domestic stock market, pushing bond yields higher through mid-week. On July 1, the dollar-won exchange rate reached 1,559.20 won at one point, marking the highest level since the global financial crisis, causing 10-year bond yields to spike 13.5 basis points in a single day in a panic-driven session.
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The panic flow quickly subsided as Meta Platforms triggered concerns about potential excess in AI infrastructure demand, causing semiconductor stocks to plunge. Meta announced it would sell and lease unused AI computing resources from its data centers to external parties.
June Consumer Price Index (CPI) data meeting expectations also provided relief. CPI rose 3.2% year-on-year, staying above 3% for the second consecutive month due to high oil price shocks, but matched expectations. Core inflation remained at 2.5%, the same as the previous month, indicating limited demand-side pressure.
US June non-farm payrolls, released a day early due to Independence Day, increased by 57,000 from the previous month, significantly below expectations. The unemployment rate came in at 4.2%, lower than the expected 4.3%.
Analysts Forecast Continued Caution Ahead of BOK Rate Decision
Market experts expect the bond market to move based on external variables such as stock prices and exchange rates rather than internal dynamics. They noted that while international oil prices have declined considerably following the US-Iran ceasefire agreement, caution is needed as central banks may continue hawkish actions.
Cho Yong-gu, researcher at Shinyoung Securities, stated that recent government bond yields have shown movements linked to stock indices and the foreign exchange market, with the domestic bond market displaying trends connected to financial market direction rather than active trading by major participants.
Cho assessed that the June FOMC minutes and Samsung Electronics earnings are important. He said the market will continue its cautious mode ahead of the July Monetary Policy Committee meeting, which will formally begin the rate hike cycle, adding that market interest lies not in the July decision but in the possibility of back-to-back rate hikes in August, the pace of the rate hike cycle, and the terminal rate level. He forecast curve flattening dominance this week.
Moon Hong-cheol, head of asset strategy at DB Securities, pointed out that despite weak US employment indicators and declining inflation expectations due to oil price stability, domestic and foreign interest rates may remain at high levels for the time being, citing the highly lagging behavior of central banks as the reason.
Moon said that since central banks and markets can continue to find logic to raise rates, such as exchange rates, GDP growth, semiconductor growth, and chipflation, there is a need to respond cautiously for the time being, forecasting that exchange rate instability due to foreign stock selling could be a factor causing volatility in market rates.
Regarding the exchange rate, Cho explained that with the prevailing view that foreign net selling volume in the stock market remains, the possibility of SK Hynix ADR volume conversion starting in July, along with extended foreign exchange market trading hours, is expected as a material favoring dollar decline.
FAQ
What events are scheduled to impact the Seoul bond market during the week of July 6-10?
Samsung Electronics will release preliminary earnings results on July 7. The US FOMC minutes from the June meeting are scheduled for release early morning on July 9. The IMF will publish its July World Economic Outlook on the evening of July 8. The Bank of Korea will release May balance of payments data on July 8 and June financial market trends on July 9. A 3.3 trillion won auction of 3-year government bonds is scheduled for July 6.
How did government bond yields perform last week?
3-year government bond yields stood at 3.745%, up 2.9 basis points from the previous week, while 10-year bond yields rose 7.8 basis points to 4.195%. The spread between 10-year and 3-year bonds widened from 40.1 basis points to 45 basis points. On July 1, the dollar-won exchange rate reached 1,559.20 won, the highest level since the global financial crisis, causing 10-year bond yields to spike 13.5 basis points in a single day.
Why did the Seoul foreign exchange market implement 24-hour trading starting July 6?
Starting July 6, Seoul's foreign exchange market operates on a 24-hour basis from 6am to 6am the next day. Market participants are watching whether offshore non-deliverable forward (NDF) transactions will flow into the onshore market over time under this new trading structure.
