The Seoul bond market is forecast to weaken on July 13 as investors digest a 2.8 trillion won 10-year treasury auction amid heightened geopolitical risks in the Middle East. The US Central Command announced additional airstrikes in the Hormuz Strait at 6am Korean time on the 13th, targeting Iranian capabilities to attack civilian vessels. Market participants are closely monitoring international oil price movements and the impact of Japanese Finance Minister Katayama Satsuki's statement on the 10th encouraging the Government Pension Investment Fund (GPIF) to expand domestic asset holdings. The won exchange rate has stabilized ahead of the upcoming monetary policy committee meeting, providing some relief to bond market participants despite the previous session's strength driven by Japan-related developments.
US Central Command Conducts Airstrikes in Hormuz Strait
The US Central Command announced on social media platform X that it initiated additional airstrikes at 5pm Eastern Time on the 12th (6am Korean time on the 13th) to continue weakening Iran's ability to attack civilian mariners and commercial vessels freely transiting the Hormuz Strait. The escalation in US-Iran military confrontation has increased market concerns, though financial markets have remained relatively stable compared to the severity of the headlines. Market participants are watching whether the situation will cross a critical threshold.
New York bond markets absorbed the expanded Middle East geopolitical risks in the previous session, with long-term interest rates rising slightly. The developments add pressure to the Seoul bond market, which had shown strength in the prior session on Japan-related factors.
Japanese Finance Minister Announces GPIF Domestic Investment Expansion Plan
Japanese Finance Minister Katayama Satsuki stated at a regular press conference on the 10th that "encouraging households and pension funds including GPIF to expand investment in Japanese financial assets is a top priority, and we will promote policies to support this." The minister emphasized ensuring that citizens can directly benefit from Japan's economic growth.
The announcement triggered sharp reactions in financial markets, with investors who had built short positions in Japanese government bonds and the yen rushing to cover their positions. Japanese 10-year government bond yields plunged 12.19 basis points in the previous session. The yen strengthened, impacting the Seoul bond market through both exchange rate channels and the path of Japanese long-term bond yields.
GPIF manages approximately 293 trillion yen (2,724 trillion won) in assets, according to Mizuho Bank. A mere 5% adjustment in asset allocation would involve funds amounting to 15 trillion yen (approximately 139 trillion won). GPIF maintains a basic portfolio allocating 25% each to foreign bonds, foreign stocks, Japanese bonds, and Japanese stocks.
Masayuki Nakajima, chief foreign exchange strategist at Mizuho Bank, stated that "a more realistic alternative could be for GPIF to increase investment in Japanese bonds and stocks within the current asset allocation ranges." This approach would reduce the possibility of causing disruptions in global financial markets through rapid reduction of overseas assets.
Seoul Bond Market Prepares for 2.8 Trillion Won 10-Year Treasury Auction
The 10-year treasury auction is scheduled to proceed with a 2.8 trillion won offering. Market participants expect weakness as hedging activity typically intensifies ahead of the auction. The previous session's strength, driven by Japan-related factors, increases the likelihood of a pullback.
Supply and demand conditions show some favorable factors, with bond fund deployment increasing at the start of the half-year period. The foreign exchange market has improved, with expectations growing for further won appreciation following large domestic corporate fund inflows and active verbal intervention by Moon Ji-seong, International Economic Management Officer at the Ministry of Economy and Finance. Bond market participants are relieved that the exchange rate has stabilized ahead of the monetary policy committee meeting.
FAQ
What did the US Central Command announce on July 13?
The US Central Command announced on social media platform X that it initiated additional airstrikes at 5pm Eastern Time on the 12th (6am Korean time on the 13th) to continue weakening Iran's ability to attack civilian mariners and commercial vessels freely transiting the Hormuz Strait.
What did Japanese Finance Minister Katayama Satsuki state on the 10th regarding GPIF?
Japanese Finance Minister Katayama Satsuki stated at a regular press conference on the 10th that encouraging households and pension funds including GPIF to expand investment in Japanese financial assets is a top priority, and that the government will promote policies to support this to ensure citizens can directly benefit from Japan's economic growth.
How much is the Seoul bond market 10-year treasury auction scheduled for July 13?
The 10-year treasury auction is scheduled to proceed with a 2.8 trillion won offering on July 13.
