M&G Backs Korean Bond Market Rally: Are Rate Hike Fears Overdone?
M&G Investments is betting on a rally in South Korean authorities bonds, arguing the Bank of Korea (BOK) will gradual its fee hike cycle at the same time as most traders brace for extra tightening.
M&G is a London-based international asset supervisor listed on the FTSE 100, overseeing greater than £300 billion for pension funds, insurers and different institutional shoppers worldwide.
A Central Bank Leaning Hawkish
The BOK raised its benchmark fee 1 / 4 level to 2.75% in July, its first rate hike since early 2023, after development and inflation knowledge ran hotter than anticipated. South Korea’s economic system expanded 0.6% within the second quarter, and shopper costs rose 2.8% in July, nonetheless above the central financial institution’s 2% goal.
Outgoing senior deputy governor Ryoo Sangdai stated final week that additional hikes stay seemingly, with policymakers weighing core inflation, development momentum and monetary stability dangers forward of the BOK’s Aug. 27 coverage assembly.
Ryoo downplayed the latest received stabilization and a KOSPI pullback as components for the board, saying inflation tendencies will carry way more weight within the determination.
“The scale of the rise will not be massive, nevertheless it may very well be persistent.”
— Ryoo
M&G Sees an AI-Fueled Bond Rally Incoming
Even with this hawkish leaning, Low Guan Yi, M&G’s head of Asia fastened earnings in Singapore, argues the market’s fee hike bets have gone too far. She factors to a semiconductor-driven tax windfall from Korean chipmakers and {hardware} suppliers, which ought to let Seoul reduce on bond issuance and tighten provide.
“We imagine the Korean bond yield curve has priced in too many fee hikes.”
— Low
M&G has added to its Korean authorities bond holdings over the previous two months, betting that the tighter provide outlook offsets the central financial institution’s hawkish indicators.
The name comes as overseas traders pull again. Bloomberg reported that internet overseas promoting of Korean authorities bonds hit about $1.2 billion in July, the very best stage since February 2025, pushing the 10-year yield up 22 foundation factors for the reason that finish of June.
That bond weak spot follows a tough stretch for Korean danger property, together with the nation’s worst KOSPI crash since 2008 earlier this month.
What Comes Next
Whether M&G’s name pays off hinges on the BOK’s Aug. 27 decision. A slower tempo of hikes would validate the agency’s bond wager and assist a rebound in Korean Treasury Bond costs.
A fourth straight enhance, then again, would vindicate the hawkish pricing in swap markets that Low argues has already gone too far.
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