Yields on South Korea's government bonds hit a record low largely due to increased overseas demand on the back of the consecutive sovereign rating upgrades on Korea by global credit appraisers, data showed Wednesday.
The yield on three-year Treasurys stood at 2.61 percent on Tuesday, the lowest since May 2, 1995 when the country first began to compile such data, according to the Korea Financial Investment Association. The return on the benchmark five-year government bonds also hit its lowest mark of 2.72 percent.
The record-low bond yields came as demand for safer assets grew among foreign investors amid the protracted global downturn, and Korean government bonds attracted their appetite following the back-to-back sovereign rating upgrades on Korea.
Moody's Investors Service and Fitch Rating Co. raised the rating on Korea by one notch to the fourth-highest level, in August and September last year.
Analysts said the sovereign rating upgrades assured overseas investors of the fact that Korea's fiscal soundness has remained firm. Foreigners bought a net 6.12 trillion won (US$5.57 billion) worth of local bonds last month, up 1.96 percent from the previous month's figure.
"A lot of the buyers are believed to be overseas banks, which seem to be bargain hunting amid the heightening North Korean situation," said Shin Dong-soo, an analyst at NH Nonghyup Securities Co.
The recent fall in bond yields reflects investors' anticipations for another key rate cut by the central bank, as the new government has been firm on boosting the economy.
But the market consensus for the March monetary policy meeting, slated for Thursday, is that the Bank of Korea (BOK) will keep the rate steady at 2.75 percent, citing the stalled government reorganization.
"The BOK won't likely decide on the monetary policy alone until the government shake-up is done and we have a clearer picture on fiscal policy," said Park Hyung-min, a Shinhan Investment Corp.