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US rate hike likely to have little impact on S. Korea's bond market

June 13, 2017 - 09:38 By a2016032

An anticipated interest rate hike by the Federal Reserve is likely to have little impact on South Korean bonds because the market has already priced in the change, analysts said Tuesday.

This week, the Fed is almost certain to increase its key interest rate for the third time in six months, with an additional rate hike eyed in September. 


Although the Fed has tightened its monetary policy, analysts expected the Bank of Korea to keep its benchmark interest rate at a record low at least till the end of this year.

Chun Seong-in, a professor of economics at Hongik University in Seoul, said there may be little impact on the Korean market unless the BOK raises its interest rate.

"A US rate hike has already been factored in the (Korean) market," Chun said.

According to data by NH Investment & Securities, foreign investors purchased a net 1.7 trillion won ($1.5 billion) worth of Korean bonds last week.

Foreign investors' holdings of Korean bonds stood at 103.2 trillion won.

Kang Seung-won, a researcher at NH Investment & Securities, said foreign investors will probably continue to buy Korean bonds after the Fed's policy meeting this week.

The local bond market weakened on Monday after central bank Gov. Lee Ju-yeol said the nation's monetary policy should be adjusted if the pace of economic growth remains robust.

Despite Lee's comments, analysts said the BOK may not be able to raise its key interest at least in 2017.

Choi Un-sun, an analyst at Cape Investment & Securities, said the nation's exports are likely to lose some steam during the second half of this year.

"It will be difficult to raise its benchmark interest rate this year because of elections set for next year," Choi said. (Yonhap)