August Government Bond Yields Volatile... Early-Month Decline, Ended Higher by Month-End

One-Year Government Bond Yield Ends August Up 7.6 Basis Points

In August, government bond yields initially declined amid expectations of an easing in Middle Eastern geopolitical risks and the subsequent spillover effects, but ultimately ended the month higher due to a continued policy of base rate hikes.

According to the "August 2026 Over-the-Counter Bond Market Trends" report released by the Korea Financial Investment Association on the 10th, the one-year government bond yield at the end of August was 3.441%, which is up by 7.6 basis points (1bp = 0.01%) from the end of the previous month. The three-year government bond yield rose by 8.0 basis points to 3.838%, the 10-year yield increased by 5.2 basis points to 4.313%, and the 50-year yield finished the month at 4.451%, up by 4.6 basis points.

August 2026 Year-End Government Bond Yield. Korea Financial Investment Association

While tensions between the United States and Iran appeared to ease at the start of August, concerns about further rate hikes and other factors led to a turnaround in market sentiment by month's end. The association explained, "At the beginning of August, government bond yields fell due to expectations of mitigating geopolitical risks in the Middle East, declining international oil prices, and a surge in risk aversion demand following a sharp drop in the KOSPI index." They added, "After mid-August, as foreign investors' purchases of government bond futures subsided and the Bank of Korea's likelihood of further rate hikes became highlighted, yields began to trend upward."

Amid these dynamics, long-term interest rates in major economies such as the United States and Japan also rose in mid-August. The yield on 30-year government bonds reached a historic high of 4.751% on August 18, and the U.S. 30-year Treasury yield surged to 5.310% on August 17.

In August, the total volume of bond issuances decreased by 8.8 trillion won from the previous month, as the increase in government bond issuance was outweighed by declines in special bonds, financial debentures, and corporate bonds. Net issuance totaled 24.8 trillion won, while the total outstanding amount of bonds was 3,178.5 trillion won.

The amount forecasted through corporate bond demand projections in August was 1.25 trillion won (across 11 cases), which is down by 940 billion won from the same month last year. The total amount of participation in demand forecasts reached 2.63 trillion won, a decrease of 9.219 trillion won compared to a year earlier, and the participation rate was 210.4%, down by 330.7 percentage points year-on-year.

Foreign investors shifted to net selling. The net purchase amount decreased by 2.7 trillion won compared to the previous month, resulting in a total net bond purchase of minus 800 billion won. At the end of August, foreign investors’ holdings of domestic bonds stood at 344.7 trillion won, down by 6.4 trillion won from the previous month.

The association stated, "From the start of the month, the KRW/USD exchange rate generally declined, causing the won to strengthen. The possibility of further rate hikes by the Bank of Korea and FX supply-demand factors related to exporting companies led to a rapid rise in cross-currency swap (CRS) rates from mid-month." They added, "As CRS rates rose, the swap basis between won interest rates and CRS rates narrowed, weakening arbitrage incentives for foreigners to invest in won-denominated bonds. This led foreign investors to shift to net selling of bonds this month."

In August, over-the-counter bond trading volume reached 387 trillion won, down by 58.4 trillion won from the previous month. The average daily trading volume was 19.3 trillion won, a decrease of 900 billion won month-on-month.

Personal net purchases amounted to 1.3694 trillion won for government bonds, 453.2 billion won for special bonds, and 386.5 billion won for corporate bonds. The total net purchase was 3.1891 trillion won, an increase of 15 billion won from the previous month.

This content was produced with the assistance of AI translation services.