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S. Korea's long-term Treasurys co-related to European bonds

All News 12:00 January 08, 2019

SEOUL, Jan. 8 (Yonhap) -- South Korea's long-term Treasurys has shown significant co-movement in its interest rate with European advanced countries since the 2008 global financial crisis, a report said Tuesday.

According to the report published by the Bank of Korea (BOK), the coefficient of 10-year Treasury bonds between South Korea and developed economies in Europe came to 0.91 during the 2010-2018 period, up from 0.56 in the 2000-2007 period.

On the other hand, the number with emerging countries, including China and Greece, fell to 0.08 from 0.32 over the cited period.

"The co-movement of long-term Treasurys' interest rates was driven by quantitative easing by central banks of the advanced economies," said Sung Byeong-mook, one of the co-authors of the report. "Central banks purchased long-term Treasurys and their prices went up. And consequently, the interest rates of long-term bonds decreased."

He said the South Korean Treasury term premium has been increasingly affected by foreign issues since the European Central Bank (ECB) started quantitative easing in 2015.

The term premium refers to the extra bonus that investors received for the added risk of owning longer-term bonds instead of short-term ones.

Also, the coinciding movement came as the South Korean economy has been on a low-growth, low-inflation cycle for years, along with European nations. Its sovereign credit has risen high enough to attract overseas institutional investors, such as sovereign funds.

"A rate hike by the ECB may push up the South Korean long-term interest rate in the future," the report said.

S. Korea's long-term Treasurys co-related to European bonds - 1


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