KRW assets will likely take some time to digest the shock imposition and removal of martial law by President Yoon overnight. During New York trading hours, there was considerable stresses in the KRW and Korea stock etfs though some of these losses were pared by the end of the session. From a rates perspective, we suspect that there would be two forces pulling in different directions. First, foreign investors may get unnerved and pare holdings of KTBs, driving yields higher. Second, this event serves to add more pressure on the Bank of Korea to ease, which had already indicated a more dovish stance with a surprise cut at the last meeting. The BoK is holding an extraordinary meeting this morning while also pledging to provide “unlimited liquidity” to the stabilize markets. We suspect that frontend KTB yields are likely to be anchored amidst reassurances from the central bank.
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