Yoon Yeosam "Interest Rate Rise Buying Opportunity... Credit Strength Expected Until Q2"

Funds Flow into Bond Market Amid Burden of Inverse Carry on Korean Treasury Bonds

[Asia Economy Reporter Yoon Yoon-joo] Yoon Yeo-sam, a researcher at Meritz Securities, predicted on the 25th that the bond market rally driven by supply and demand would continue until the second quarter.

Researcher Yoon stated on the day, "The core factor currently driving the (bond) market rally, expected to the extent of monetary policy easing expectations within the year, lies in the supply and demand conditions."

He explained, "Due to the burden of negative carry on government bonds, warmth quickly shifted to the high-quality bond market, and the supply conditions, which are insufficient compared to demand at the beginning of the year, are likely to continue at least until the second quarter."

Researcher Yoon analyzed, "While the global bond market has shown a stable trend since the beginning of the year, the Korean bond market is particularly strong. The common reasons for the domestic bond strength?peak inflation, economic slowdown, and easing concerns over monetary policy tightening?are not significantly different from other regions."

Above all, Researcher Yoon evaluated that the inversion phenomenon between government bond yields and the base interest rate is due to the overall stability of the capital market. Currently, the long- and short-term spread is negative, with the 10-year government bond yield lower than the 3-year government bond yield. Even investing in long-term government bonds cannot resolve the negative carry situation. Therefore, to resolve the negative carry, there is no investment alternative other than investing in credit bonds such as corporate bonds.

He emphasized, "Although the excessive rally caused by supply and demand risks being easily reversed, if real estate-related restructuring issues arise within the first half of the year, the 'bond market demand > supply conditions' may not be easily resolved. It is still necessary to pay attention to bond investment."