Potential Buying Opportunity for South Korean Bonds Amid US Election Volatility
Increased volatility is predicted as the US elections draw near, which may offer investors a profitable chance to purchase South Korean bonds. According to analysts, political turbulence around the referendum in November could drive up Korean rates, which would make short-term securities especially appealing because of the possibility of local interest rate decreases.
Impact on Korean Yields and Bond Market
According to Mirae Asset Global Investments Co., by year’s end, three-year yields might drop by as much as 40 basis points. “There’s a risk for bond yields to climb, led by longer tenors, due to uncertainties around the US November elections,” said Choi Jinyoung, head of fixed-income management at Mirae Asset. Bonds maturing in less than three years, however, should see a rebound as these concerns lessen due to probable rate reductions by the Bank of Korea (BOK).
Predictions for Rate Cuts
Mirae projects that the three-year yield will go as low as 2.9% by year’s end, and that the BOK will reduce its benchmark rate by up to 75 basis points, to 2.75%, during its cycle of rate-cutting. The yield dropped to 3.05% this month, the lowest level since August 2022.
Global Investment Strategies Amid US Elections
Global investors are devising plans to profit on the possible volatility brought on by the US presidential election. The “Trump trade,” or the increasing probability that Donald Trump will seek a second term, is thought to have the effect of strengthening the dollar and having an effect on higher-risk assets, such as those in developing economies.
Korean Central Bank’s Role
Additional considerations for Korean investors arise from the expectation that the central bank will reduce interest rates by the end of the year. Even though BOK Governor Rhee Chang-yong tried to allay these expectations last week when policymakers decided to leave the benchmark rate at 3.5%, traders are still pricing in a policy shift.
“The central bank’s renewed concerns over financial imbalances may delay the date of the first cut to October from August, but it’s just the timing that’s being pushed back,” said Woo Hye-young, a fixed-income analyst at LS Securities in Seoul. She also mentioned that there is still a chance for two rate cuts this year, one in October and one in November.
Cautious Approach from Local Funds
Not every local fund is seizing the chance. KB Asset Management Co. is waiting to see how anticipated rate reductions will affect the Korean yield curve. Other market-moving factors that were mentioned by the director of the fixed-income division, Kang Jin-won, including the won, household debt levels, and the possibility of Korean bonds being included in FTSE Russell’s World Government Index.
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