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Foreigners swoop to Korean bonds after SVB collapse

Economy 11:20 March 30, 2023

SEOUL, March 30 (Yonhap) -- Foreign investors have been rushing to buy South Korean bonds on expectations of global monetary easing since the recent collapse of Silicon Valley Bank (SVB) in the United States, industry sources said Thursday.

Foreigners bought a net 11.09 trillion won (US$8.5 billion) worth of South Korean bonds between March 1 and Wednesday, according to Yonhap Infomax, the financial news arm of Yonhap News Agency.

Offshore investors centered on state and monetary stabilization bonds, with Treasurys reaching as much as 7.5 trillion won.

It marks the largest foreign net purchase of local bonds since June last year, when the amount came to some 12.1 trillion won.

The outstanding value of local bonds bought by foreigners began to hit the skids after rising to as high as 230 trillion won, in the wake of U.S. monetary tightening and increased volatility in the corporate debt market.

Foreigners swoop to Korean bonds after SVB collapse - 1

In January this year, offshore investors even sold a net 3.4 trillion won worth of South Korean bonds.

Market watchers attributed foreigners' recent buying spree of local bonds to rising hopes that major central banks may go soft following the SVB failure and a subsequent crisis over Credit Suisse, a major global investment bank.

"Foreigners appear to have bought more South Korean bonds on eased concerns over excessive monetary tightening by the U.S. Fed and other central banks following the bank crisis," Shinyoung Securities analyst Cho Young-koo said.

Indeed, analysts said offshore investors have begun to buy South Korean bonds in large amounts since the third week of March, shortly after SVB's collapse.

Although foreigners have strong confidence in South Korean bonds now, some watchers said that there remains a risk of their exiting the Korean bond market.

"Foreign investors remain confident about South Korean bonds, but additional rate hikes by the Bank of Korea would come as a big risk to them," Yoon Yeo-sam, an analyst at Meritz Securities, said.

In late February, South Korea's central bank held the benchmark interest rate steady at 3.5 percent, the first rate freeze in 10 months, amid growing worries that aggressive monetary tightening could hurt economic growth.

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