The Korea Financial Investment Association hosted a global bond forum to discuss next year's outlook for domestic and overseas bond markets and ways for foreign investors to use South Korean treasury bonds.
KOFIA said on the 15th that it held the forum under the theme "2027 Bond Market Outlook and Global Investors' Use of Korean Bonds," in conjunction with Korea Premium Week 2026.
Lim Jae-kyun, a team head at KB Securities who presented the domestic bond market outlook, said the local bond market will enter a phase of falling yields next year, helped by easing inflationary pressure, adjusted growth expectations and improving treasury bond supply and demand. "Spare funds from the Future Response Fund, a government fund to be launched in earnest next year to finance investment in future growth industries, will flow into the domestic bond market and expand demand for short- and medium-term treasury bonds," he said. "On the back of relatively sound fiscal conditions and rising bond demand from expanded arbitrage trading (basis trading) by foreign investors, yields here could diverge from those in the U.S."
Kwon Hyo-sung, an economist at Bloomberg, by contrast forecast that the Korean economy will grow 3.7% this year and 3.0% next year on the back of a semiconductor super cycle. Strong chip exports will feed through to national income, domestic consumption and facility investment, keeping underlying inflationary pressure in place, he said. On that basis, he expects the Bank of Korea to raise its base rate to 3.50% by the first quarter of next year.
He also said upward pressure on long-term yields will persist in global bond markets. "Larger current account surpluses in semiconductor-exporting countries from expanded artificial intelligence investment, together with wider fiscal deficits in major economies, will affect international capital flows and the structure of interest rates," Kwon said, citing rising government debt and falling treasury demand in the U.S. and other major economies, along with increased AI-related corporate bond issuance, as factors pushing up long-term yields and widening term premiums.
The forum also took up the markets and systems that support foreign investors' use of domestic bonds. Kim Jong-wook, a team head at Korea Securities Finance Corporation, said the balance of the domestic bond lending market stood at 203 trillion won at the end of August this year, roughly 8.8 times the level of a decade ago. "Unlike offshore markets, where the lender bears the credit risk, the domestic lending market has intermediaries that take on the credit risk and are involved throughout the transaction," Kim said. "Systematic risk management can support participation by global investors."
The Korea Securities Depository plans to strengthen support so that foreign investors can invest in domestic treasury bonds and use their holdings to raise funds. "Through the integrated treasury bond account opened in June 2024, 100 institutions from 19 countries are currently trading treasury bonds," said Chae Young-jin, a team head at the KSD. Collateral-purpose lending transactions are designed to improve foreign investors' access to funding and boost liquidity in the treasury bond market by allowing collateral securities to be reused through the transfer of ownership of the bonds.
KOFIA plans to hold the forum once in the first half and once in the second half of each year to present outlooks for domestic and overseas bond markets and global bond-related issues.