Korea Bonds and the Bank of Korea: KTBs and Won — 2026-10-18
The Bank of Korea is expected to hold its benchmark rate at 3% on October 22, with markets bracing for a potential hike in November. Amid this tightening outlook, Korea faces a significant fiscal challenge with 241 trillion won in low-rate treasury bonds maturing by 2030, driving up refinancing costs. Meanwhile, the won has strengthened to a two-year low against the dollar, while foreign investors continued their net selling of Korean stocks in September.
Korea Bonds and the Bank of Korea: KTBs and Won — 2026-10-18
Top developments
BOK Expected to Hold Rate in October, Signal Hike for November
A survey by the Seoul Economic Daily indicates that 20 experts expect the Bank of Korea (BOK) to keep its benchmark interest rate unchanged at 3% during the Monetary Policy Committee meeting scheduled for October 22. However, the consensus points toward a rate increase in November, reflecting concerns over inflation and the need to stabilize the financial system. This expectation aligns with recent comments from BOK Governor Rhee Chang-yong, who has maintained a hawkish stance despite slowing growth indicators.
241 Trillion Won in Low-Rate Bonds to Mature by 2030
Korea faces a substantial increase in debt servicing costs as approximately 60% of the 406 trillion won in treasury bonds maturing between 2027 and 2030 were originally issued at rates below 3%. This "maturity wall" of 241 trillion won in low-rate debt will require refinancing at current, higher market yields, significantly lifting interest expenses. The Seoul Economic Daily’s exclusive analysis highlights that this rollover pressure is a critical structural issue for the government’s fiscal outlook in the coming years.
Won Hits Two-Year Low Against Dollar
The Korean won strengthened significantly against the US dollar, reaching its lowest exchange rate in 25 months. On October 16, the won-dollar rate fell to 1,331 won per dollar, marking a two-year low, driven by a weaker dollar and domestic equity market resilience. Additionally, the won-yen rate dropped to its lowest level in over 18 years, reflecting diverging monetary policies and economic performances between Korea and Japan.
Foreign Investors Dump Korean Stocks Amid Rate Surge Concerns
Foreign investors turned to net selling of Korean stocks in September, withdrawing $14.16 billion, marking the first monthly net outflow since August. The Bank of Korea attributed this shift to global rate surges and changing sentiment regarding AI-related investments. Despite the stock outflows, foreign investors remained net buyers of Korean government bond futures, posting the second-largest buying spree on record, indicating a divergence in asset class preferences.
Local view
Local financial media highlight the tension between strong export earnings and the weakening impact on the won due to capital outflows. Chosun Ilbo reports that while semiconductor exports are robust, the "leakage" of dollars into foreign assets by domestic institutions is dampening the currency's strength. Seoul Economic Daily emphasizes the "rollover shock" awaiting the government, warning that the cost of servicing public debt will rise sharply as low-rate bonds mature.
Context & numbers
- 3-Year KTB Yield: Closed at 3.854% on October 16, showing a decline from previous sessions.
- 1-Year TB Yield: Stood at 3.694% on October 16.
- Won-Dollar Rate: Reached 1,331 won per dollar on October 16, a two-year low.
- Foreign Stock Flows: Net outflow of $14.16 billion in September 2026.
- Bond Maturity: 406 trillion won in KTBs maturing 2027–2030, with 241 trillion won issued at <3%.
On the radar
- BOK Monetary Policy Meeting: Scheduled for October 22, 2026. Markets are watching for any hints regarding the timing of the next rate hike.
- 50-Year Bond Auction: The recent auction for 50-year treasury bonds saw a high bid-to-cover ratio of 246%, the highest in over two years, indicating strong demand for long-duration safety.
- WGBI Inclusion Completion: The final phase of Korea's inclusion in the World Government Bond Index is expected to conclude in November, which could influence passive fund flows.
This content was collected, curated, and summarized entirely by AI — including how and what to gather. It may contain inaccuracies. Crew does not guarantee the accuracy of any information presented here. Always verify facts on your own before acting on them. Crew assumes no legal liability for any consequences arising from reliance on this content.
Powered by
