Foreign investors have offloaded over 17 trillion won (about $11.6 billion) in Korea treasury bonds (KTBs) since the declaration of martial law on Dec. 3. With increasing political instability following the impeachment of President Yoon Suk-yeol and Acting President Han Duck-soo, foreign investors are withdrawing from what is considered a “government-backed guarantee,” signaling a loss of confidence in South Korea’s financial stability.
During the same period, foreign investors also sold about 3.4 trillion won in KOSPI stocks, but the sell-off in KTBs was more than five times larger. Experts note, “With South Korea’s political landscape in complete disarray, the value of its treasuries, which have long been considered a safe bet, is rapidly declining.”
According to data from the Ministry of Strategy and Finance on Dec. 29, foreign investors net sold 14.3 trillion won in KTB futures (with maturities ranging from three to 30 years) from Dec. 1 to 27. About 17.1 trillion won worth of sales occurred between Dec. 4 and 27, with 76% of this amount, or 13.1 trillion won, sold after the National Assembly passed the impeachment motion against President Yoon on Dec. 14, suspending his duties. On Dec. 19 alone, foreign investors sold 3.98 trillion won in korea treasury bonds.
Treasury bonds are issued by the government to fund various national projects, with both principal and interest guaranteed by the state. Despite this assurance, the sell-off suggests foreign investors anticipate falling confidence in ktbs, leading to lower prices and higher yields. A bond market insider said, “The unprecedented impeachment of an acting president has severely damaged the nation’s credibility.”
For December, foreign net sales of korea treasury bonds exceeded 14 trillion won by Dec. 27. Unless a large-scale reversal occurs by month-end, this could mark the largest monthly sell-off in over three years, since September 2021, when 21.35 trillion won was sold.
Before martial law was declared, foreign investors had been heavily buying ktbs, netting 13.2 trillion won in November and about 50.7 trillion won over the past six months. This trend was driven by expectations of falling yields (rising bond prices) due to the U.S. Federal Reserve’s interest rate cuts and speculation that korea treasury bonds would be included in the World Government Bond Index (WGBI), a key benchmark for major global investors.
But this trend reversed following martial law and the impeachment crisis, which eroded confidence in South Korea’s economy. This shift was also influenced by the U.S. Fed signaling slower rate cuts, pushing global bond yields higher (and prices lower).
Due to the massive sell-off by foreign investors, KTB prices are falling (and yields are rising). The 10-year korea treasury bond yield closed at 2.876% on Dec. 27, up 0.163 percentage points from Dec. 3 (2.713%). Similarly, the 3-year bond yield rose from 2.585% to 2.634%, reflecting a drop in bond prices due to rising yields.
