The recent tariff war initiated by U.S. President Donald Trump has intensified the preference for safe assets, leading foreign investors to significantly purchase Korean Government Bonds last month. This trend is also interpreted as being influenced by expectations that the Bank of Korea will lower the benchmark interest rate.
According to Yonhap Infomax on the 6th, foreign investors recorded a net purchase of 214,313 contracts of Korea's three-year Government Bonds last month. In monetary terms, this amounts to 23.2 trillion won. Except for four transaction days (14th, 22nd, 23rd, and 24th), the number of purchases exceeded sales.
Foreigners net purchased 102,523 contracts of ten-year Government Bonds last month, amounting to 12.34 trillion won. The ten-year Government Bonds were also skewed towards buying on every trading day except for four transaction days (8th, 9th, 11th, and 24th).
With foreigners buying a total of 35.36 trillion won worth of three-year and ten-year Government Bonds, the yield on government bonds faced downward pressure. Typically, when foreign investors purchase Government Bonds, causing prices to rise, domestic institutional investors sell Government Bonds and buy spot bonds, resulting in a decrease in yields. Last month, the yield of three-year government bonds fell over 30 basis points (1 basis point = 0.01 percentage point) to below 2.300%. As of the end of last month, it stood at 2.267%.
The bond purchases by foreigners are interpreted as being triggered by the reciprocal tariff policy of the Trump administration. On the 2nd of last month (local time), the Trump administration announced higher-than-expected tariff rates, leading to increased concerns about a global economic downturn and a shift of funds into bonds, which are safe assets. It is understood that Korean Government Bonds attracted market attention as alternatives to U.S. Treasury bonds due to the inconsistent tariff policy of the Trump administration.
Yoon Yeosam, a researcher at MERITZ Securities, noted, "(Korean Government Bonds) have intensified bullish factors due to economic slowdown and interest rate cutting cycles, undervaluation of the won, arbitrage incentives, and constraints on credit supply," and analyzed, "It continues the strongest downward (yield) stability trend among major country bonds."
Foreign investors also seem to have purchased Government Bonds anticipating that the Monetary Policy Committee will lower the benchmark interest rate at the end of this month. When interest rates decrease, bond prices rise.
Lee Hwa-jin, a researcher at Hyundai Motor Securities, stated, "The GDP growth rate for the first quarter recorded a decline of negative (-) 0.2% compared to the previous quarter due to sluggish domestic consumption and exports," and continued, "There is a high possibility that the forecast for growth rates will be downgraded, leading to three interest rate cuts in the first quarter, bringing the Korean benchmark rate from its existing 2.75% to 2.00% by the end of the year."