M&G Investment Increases Holdings in Korean Government Bonds, Believing Market Has Priced In Excessive Rate Hikes

Odaily News, according to M&G Investment, as inflation pressures ease, the Bank of Korea may slow the pace of rate hikes contrary to expectations, potentially strengthening Korean government bonds. Low Guan Yi, head of the company's Asian fixed income business, stated that the AI boom has led to a significant increase in tax revenue from Korean chip makers and hardware suppliers, which will also enable the government to reduce its borrowing scale. She said: "We believe the Korean bond yield curve has priced in too many rate hikes." She also added that the company has increased its holdings of Korean government bonds over the past two months. "Given the unexpected revenue windfall the government is currently receiving, the supply of Korean government bonds will decrease in the future."

Low's remarks reflect the view of an emerging but growing group of Korea watchers: despite recent capital outflows and widespread expectations of further rate hikes by the Bank of Korea, they believe that geopolitical factors and sustained AI enthusiasm will ease pressure on the bond market in the coming weeks. Korean government bonds have faced pressure in recent weeks, with net foreign selling reaching approximately $1.2 billion in July, the highest level since February 2025. The 10-year yield has risen 22 basis points since the end of June.