Foreign investors' net purchases of 3-year Korean treasury futures reached approximately 119,000 contracts as of August 5, marking the largest accumulation since mid-January, according to bond market data. The buying intensified after the Bank of Korea's July 16 monetary policy meeting, with foreign investors purchasing over 10,000 contracts immediately following the meeting and continuing net purchases on all but one subsequent trading day. Market participants attribute the surge to expectations that the Bank of Korea's monetary policy will be more dovish than anticipated, as recent domestic stock market volatility, stable oil prices, and exchange rate stabilization reduce the likelihood of back-to-back rate hikes and suggest a lower terminal policy rate than previously expected.
Foreign Investors Drive 27.6bp Yield Drop Since July 23
Foreign investors executed net purchases for 10 consecutive trading days starting July 23, according to bond market sources. During this period, the 3-year Korean treasury yield fell to 3.677% from 3.953% recorded on July 23, a decline of 27.6 basis points. The buying activity led the bond market rally while domestic institutional investors reduced their delta exposure. One foreign investor stated, "Expectations emerged that consumption would slow due to recent Korean stock market declines, and with oil prices and exchange rates stabilizing, there's a view that the terminal policy rate may not be as high as previously thought. Buying continued from lower levels, possibly overlapping with CTA purchases."
Market Participants Cite Dovish Policy Expectations and CTA Activity
A foreign institutional source said, "Most foreign investors had almost no long positions, but buying suddenly surged as interest rates and oil prices recently declined. With U.S. rates falling significantly, there's a sense of increased buying in Asian markets where futures trading is favorable." The source added, "Many foreign investors appear to view back-to-back rate hikes as difficult after seeing recent headline inflation moderate." Another foreign market participant noted, "As U.S. Treasury yields declined, foreign investors looking at Asian bond strength actively entered markets with good futures liquidity." Some analysts suggest algorithmic trading institutions (CTAs) contributed to the buying volume, as CTAs typically buy in uptrends and sell in downtrends based on market momentum data.
Analysts See Room for Additional Buying with 570,000 Contract Open Interest
One securities firm bond dealer stated, "The open interest for 3-year treasury futures is still at 570,000 contracts, so I see room to build more positions," predicting additional purchases. Another securities firm bond dealer said, "Foreign investors' treasury futures buying began in earnest after the July monetary policy meeting. Given movements considering exchange rates and the Bank of Korea's stance, I think it will continue for the time being." A different bond industry source said, "Foreign investors' characteristics have diversified and they sometimes move in opposite directions, making it difficult to easily estimate their movements."
FAQ
What volume of 3-year Korean treasury futures did foreign investors purchase as of August 5?
Foreign investors' cumulative net purchases of 3-year Korean treasury futures reached approximately 119,000 contracts as of August 5, representing the largest accumulation since mid-January.
Why did foreign buying of Korean treasury futures intensify after the July 16 Bank of Korea meeting?
Market participants attribute the intensified buying to expectations that the Bank of Korea's monetary policy will be more dovish than anticipated, as domestic stock market volatility, stable oil prices, and exchange rate stabilization reduce the likelihood of back-to-back rate hikes and suggest a lower terminal policy rate.
