Seoul's bond market is expected to show cautious movement during the week of July 20-24 as investors monitor South Korea's Q2 economic growth data and international oil price trends. The outlook follows heightened US-Iran military tensions, with the US Central Command announcing on July 18 that two US soldiers stationed in Jordan were killed and one went missing on July 17 during defense operations against Iranian ballistic missile and drone attacks. Deputy Prime Minister and Minister of Economy and Finance Gu Yun-cheol will chair multiple economic meetings throughout the week, while the Bank of Korea is scheduled to release Q2 real GDP figures on July 23.
US Central Command Reports Soldier Deaths in Jordan During Iran Defense Operations
The US Central Command, which oversees military operations against Iran, stated on July 18 that two US soldiers stationed in Jordan were killed on July 17 while Central Command and allied forces were defending against Iranian ballistic missile and drone attacks. One soldier remains missing.
Deputy Prime Minister Gu Yun-cheol is scheduled to chair the External Economic Ministers' Meeting and a first-anniversary town hall meeting on July 20. On July 22, he will participate in the Emergency Economic Headquarters meeting combined with the Economic and Industrial Competitiveness Enhancement Ministers' Meeting, and on July 24 he will attend the Livelihood Price Special Management Ministers' TF meeting.
The Ministry of Economy and Finance will announce the 2025 National Balance Sheet results on July 22.
Bank of Korea Governor Shin Hyun-song will depart for Singapore to attend the Executives' Meeting of East Asia-Pacific Central Banks (EMEAP).
The BOK will release the results of its Financial Institution Lending Behavior Survey on July 20. On July 22, it will publish the Producer Price Index for June 2026 (preliminary), and on July 23 it will release the highly anticipated Q2 real GDP figures. The August Monetary Stabilization Bond issuance plan will also be announced on the same day.
Seoul Bond Market Posts Bear Flattening as 3-Year Yield Rises 8.1bp
During the previous week (July 13-17), the 3-year Korean Treasury Bond yield (based on average market rates) surged 8.1bp from the prior week to 3.852%, while the 10-year yield rose 6.4bp to 4.30%. The spread between 10-year and 3-year bonds narrowed from 46.6bp to 44.8bp, resulting in a somewhat flatter yield curve.
The intensification of the US-Iran conflict and surging international oil prices led to heightened weakness in the short- to medium-term segments. Domestically, caution persisted ahead of the first rate hike.
Domestic export indicators also performed well, acting as a bearish factor. Exports from July 1 to July 10 increased 53.9% year-over-year, recording the highest level ever for the 1-10 day period.
The 10-year Korean Treasury Bond auction proceeded strongly ahead of high-volatility indicators including the Financial and Monetary Committee meeting and the June US Consumer Price Index (CPI) release.
President Lee Jae-myung stated in opening remarks at the National Fiscal Strategy Meeting held at the Blue House on July 13 that "unprecedented additional tax revenue is expected thanks to the semiconductor boom triggered by the artificial intelligence (AI) revolution," adding that "this large-scale additional tax revenue will be used as a funding source for strategic investment to respond to the future."
The US CPI came in below market expectations, providing support to the New York bond market. However, it did not act as a bullish factor domestically due to caution ahead of the Financial and Monetary Committee meeting.
The US Department of Labor announced on July 14 that the all-items CPI for June fell 0.4% from the previous month. This was the lowest since April 2020 and below the market expectation of -0.1%.
The Financial and Monetary Committee decision matched market expectations. The Bank of Korea decided unanimously at its July 16 meeting to raise the base rate from 2.50% to 2.75%.
When asked about the possibility of a consecutive rate hike next month, BOK Governor Shin Hyun-song responded that "all upcoming meetings are live meetings" and "we will keep all possibilities open."
On the day of the Financial and Monetary Committee meeting, the 3-year and 10-year segments fell 1.5bp and 3.2bp respectively based on average market rates. Assessments emerged that the market partially reflected the strength of the New York bond market that it had not previously followed, as caution over the Financial and Monetary Committee dissipated.
Foreigners net sold approximately 11,000 contracts of 3-year Korean Treasury Bond futures and approximately 2,200 contracts of 10-year futures during the previous week.
US 2-year and 10-year Treasury yields fell 1.3bp and 2.9bp respectively during the previous week.
Analysts Expect Cautious Trading Amid Policy Uncertainty
Experts anticipate continued caution in the bond market.
Moon Hong-cheol, Head of Asset Strategy Team at DB Securities, explained that "carry attractiveness has increased due to the rate hike, and there is price merit as the rate increase was priced in ahead," adding that "falling exchange rates and stock market instability can exert downward pressure on bond yields."
He stated that "however, oil prices are showing unstable movements again, and Iran-related uncertainty remains," noting that "this is a cautious segment as it could strengthen the central bank's tightening stance."
Team Head Moon added that "the possibility of upward revision to domestic economic growth forecasts based on semiconductor industry conditions and low investment sentiment regarding uncertainty also remain," stating that "in this cautious phase, only modest bargain hunting can be expected."
Cho Yong-gu, researcher at Shinhan Securities, stated that "while monetary policy tension remains high for the time being, the extent of economic outlook upgrades, whether Middle East risks will be highlighted again, and the budget plan and Korean Treasury Bond issuance limit for next year at the end of August are expected to be the main factors determining interest rate direction."
He explained that "this year's growth rate forecast can be digested without major shock up to around 3%, but if growth is in the mid-3% range or higher, additional shocks could be reflected."
FAQ
What key economic data will be released during the week of July 20-24?
The Bank of Korea is scheduled to release Q2 real GDP figures on July 23. The BOK will also publish the Financial Institution Lending Behavior Survey results on July 20 and the Producer Price Index for June 2026 (preliminary) on July 22. The Ministry of Economy and Finance will announce the 2025 National Balance Sheet results on July 22.
How did Seoul's bond market perform during the week of July 13-17?
The 3-year Korean Treasury Bond yield rose 8.1bp to 3.852%, while the 10-year yield increased 6.4bp to 4.30%. The spread between 10-year and 3-year bonds narrowed from 46.6bp to 44.8bp. The Bank of Korea raised the base rate from 2.50% to 2.75% on July 16 in a unanimous decision.
What did the US Central Command report regarding US soldiers in Jordan?
The US Central Command announced on July 18 that two US soldiers stationed in Jordan were killed on July 17 while Central Command and allied forces were defending against Iranian ballistic missile and drone attacks. One soldier remains missing.
