The Finance Ministry expects bond yields not to fall below 4.8%. According to ministry forecasts, the interest rate on three-year government bonds, the benchmark for local bonds, is expected to move between 4.84%-5.05%. The estimation follows a decline in bond interest rates last week, after Bank of Korea‘s decided to keep the benchmark interest rate unchanged at 4%. Due to the good performance of the local equity markets in 2005, the demand for bonds has been weakening.
The ministry’s report addresses a more recent trend in which bond yields have been declining on predictions that the global tightening in policy interest rates have reached an end. The Finance Ministry also expressed confidence of achieving sustained economic growth. This year, the ministry expects the domestic economy to grow 5% on the back of strong consumption and corporate investment.