SOUTH KOREA: Near Term Bias for Higher as Valuations Looking Attractive

Following the lead from moves in JGBs Monday, Korean bond futures have gapped lower at the open.  Opening at 110.24, the Korean 10-Yr has traded in a 109.87 - 110.33 range and is currently down -.19 at 109.93, from Friday's close.  Momentum indicators are bearish with the 10-Yr nearing oversold on the 14-day relative strength index and the MACD (white) line below the Signal (red) line,  a bearish signal.

1-2 year yields are steady, to moderate lower - impacted by the super size KRW3.1tn 3-year auction today whilst the rest of the curve is +2 - +4.5bps higher in yield.

The 10-Yr is up +4bps today at 3.739%,, retracing all of the move lower following last week's rally in UST yields.  This shows KTBs vulnerability to global moves at present, given little to no expectations for BOK rates in the near term and growth moderate at best.  

The risks now are for a yields to rise higher, given JGB correlations.  

In December the BOK conducted its first purchase of 5-10-20year government bonds in over three years to halt rising yields whilst the FSC extended a market stabilization programmes through 2026 to include KRW37.6 tn of purchases.

Year to date BOK issuance in the short end has done more than 10% of the full year total, pressuring short end rates.  

Near term biases are for higher yields, with the front end in focus.  Longer term however given the growth outlook, yields are starting to look good value relative to dividend yields.