Bond Yields Fall; Recovery Doubts Dampen Equities

Despite declining bond yields, the stock market continues to be sluggish. If the yield rates of debt instruments go down, investors usually flock to the stock market seeking higher returns, but this is not happening right now.

"The stock market has failed to benefit from decreased bond yields," said an investment strategist from Daewoo Securities, "because investors are worried about signs that economic recovery will be delayed and about the limping corporate restructuring."

The yield on three-year government bonds declined 0.02 percentage point on Friday to 6.15 percent from Thursday. It was 6.93 percent at the end of April.

But the Korea Stock Price Index has lingered around the 600 level after recording the high for the year on Tuesday. As much as 500 billion won ($400 million) of customers' deposits were withdrawn last week, leaving the total deposits below 9 trillion won.

"As investors are disappointed by the grim prospects for economic recovery and the obscure U.S. stock market," said an analyst, "they are pulling their money out of the stock market and putting it into the bond market. This is pushing bond yields down."

Many say that the disconnection between the lowered bond yields and the stock market will continue for the time being.

"Economic recovery should be confirmed in economic indexes," said another analyst. "These days, even among debt instruments, investors are focusing on government bonds, turning their faces away from the corporate bonds tagged risky by credit rating firms."

by Ha Jae-sik