Strong Korean 10y T-Bond

1. Composition of the yield

In the surface, yield of Korean 10y T is lower than US 10y T.

But for foreign investors (the outside of Korea), yield of Korean bonds is 'yield of bond - swap basis' because they invest on the securities with swap contractions.

And swap basis (CRS - IRS) is keeping minus continuously.

2. Edge of the securities with Korean economic fundamental against those of other countries.

Even if Fed is raising Federal Fund Rate, Market yields of developed markets are too low for the market participants.

10Y German, 10Y Japanese and 10Y UK are about 0.6, 0.06 and 1.5 individually.

And the situations of EM aren't good really.

For example, Argentina is going to bankruptcy, and USDTRY and USDBRL have risen about 20% and 13% from early this year.

Fundamental of Korean market is much stronger than those of many emerging markets, and 10Y Korean with swap basis is giving the participants higher than 3.5.

With this, Korean rate market is much more stable than US, Chinese or UK markets because BOK can't raise their 7-day REPO rate fast unlike US or UK.

3. Forecast for the market

I believe that the robust real-economic fundamental and the stance of government in Korea will support high value of KRW.

Global economy is good enough, and this will leads good performances of Steel, Shipbuilding, Computer-chip, petro-chem.

Stock market will be not that good, though.

And there is a theoretical favor-point to the markets, Korean-Summit.

Even if the tension still left between US-South Korea and North Korea, it is lowering default-risk for the securities.

Strong economic fundamental and high value of KRW with stable policy will support Korean T market continuously.