Bank of Korea: "Prolonged U.S. Shutdown Heightens Global Risks"

Bank of Korea Reviews Market Conditions During Chuseok Holiday
Korea's Inclusion in World Government Bond Index Seen as Positive for Investment Sentiment

The Bank of Korea assessed that global financial market uncertainty has somewhat increased during the Chuseok holiday period, citing factors such as the U.S. federal government shutdown (a temporary suspension of government work due to budget delays).

Sangdae Yoo, Deputy Governor of the Bank of Korea Photo by Yonhap News

Sangdae Yoo, Deputy Governor of the Bank of Korea, held a 'Market Situation Review Meeting' on the morning of October 10 and stated, "Although international financial markets remained generally stable during the holiday, global risk factors have somewhat increased."

Deputy Governor Yoo explained, "During the holiday period, international financial markets experienced minor fluctuations in key price variables, influenced by the ongoing U.S. federal government shutdown, the results of the Japanese Liberal Democratic Party leadership election, political turmoil in France, and expectations for improved earnings from major tech companies."

During the Chuseok holiday (October 3-9), U.S. Treasury yields for 2-year and 10-year bonds each rose by 0.06 percentage points. The U.S. Dollar Index (DXY) increased by 1.6% due to the weakening of the euro and yen. The S&P 500 in the United States rose by 0.3%, led by semiconductor and other tech stocks, while the Nasdaq climbed by 0.8%. As for Korean assets, the Korean won weakened against the U.S. dollar by 1.6% (based on NDF), but the credit default swap (CDS) premium remained low at 0.24 percentage points.

Deputy Governor Yoo stated, "As domestic and external risk factors such as uncertainty regarding future U.S. tariff policy, the Federal Reserve's rate-cut path, and concerns over fiscal soundness in major countries persist, we will continue to closely monitor market conditions with a heightened sense of vigilance."

However, he noted that investment sentiment toward Korea could remain positive, supported by expectations for the inclusion of Korean government bonds in the World Government Bond Index (WGBI).

Deputy Governor Yoo added, "With FTSE Russell reaffirming the inclusion of Korean government bonds in the WGBI, market predictability is expected to improve, which should have a positive effect on investment sentiment." On October 8, FTSE Russell announced that Korean government bonds would be included in the WGBI starting in April next year. The WGBI is the world's largest bond index, with up to 3 trillion won in tracking funds.