US rate hike unlikely to have big impact on local bond market: experts

A looming US rate hike this week appears unlikely to exert a negative impact on South Korea's bond market, experts here said Tuesday.

The US Federal Reserve is widely expected to raise its key rate by a quarter of a percentage point to a target range of 1 to 1.25 percent. In March, the Fed also raised its key rate by a quarter of a percentage point.

Experts said the local bond market may become more sensitive to the rate change in the short-term, though the bond market is unlikely to suffer any major setback.

Jun Sung-in, a professor of economics at Hongik University in Seoul, said a US rate hike, if made, would not have an impact on the local markets unless South Korea's central bank follows by raising its key interest rate.

"A US rate hike is unlikely to cause any capital outflow as a rate hike has already been factored into the markets," Jun said.

Despite a possible US rate hike, foreign investors snapped up South Korean bonds worth 2.5 trillion won ($2.2 billion) last week, raising their holdings to 103 trillion won as of Friday.

On Monday, Bank of Korea (BOK) Gov. Lee Ju-yeol said the central bank may take a monetary tightening approach if the economy shows signs of a robust recovery. Still, analysts said the BOK is unlikely to raise its key rate within this year.

Choi Un-sun, a fixed-income analyst at Cape Investment & Securities Co., said the central bank appears unlikely to raise its key rate within this year, citing a possible slowdown in export momentum in the second half and a possible deflation in property markets in provincial areas next year.

Last month, the BOK unanimously voted to keep the key rate at 1.25 percent, extending its wait-and-see approach for the 11th consecutive month. (Yonhap)