As the last speaker in the morning session, Researcher Kim Sang-hoon will talk about the outlook for the domestic bond market and the overseas bond market. The theme for his speech is Believe in the market up to three times. After his presentation ends, we will have a lunch break until 1:30 p.m. and then resume the forum. Hello, I am Kim in charge of bonds. The title of our materials is Believe in the market up to three times, both for the domestic and overseas markets. First of all, the meaning is not about predicting interest rate cuts up to three times. Initially, after the Legoland incident in October and November 2022, there was a bit of manifestation of the authorities' will, and the interest rates stabilized a bit. Also, last November, through cooperation with the Ministry of Finance, the market regained stability in October and November. And we...

Basically, when asked what the biggest difference is between last year and this year from the beginning of the year, we always mention the change in the will of the policy authorities. As you know, Powell is still leaving open the possibility of a rate cut by the end of the year, and we are looking at how those aspects might be integrated into the liquidity environment of the Treasury Department to slightly lower interest rates. This is how we have titled the material. In terms of Korea, when we look at the 10-year government bond yields, we think that in the second quarter, they will fluctuate around 3.5%. When we talk about the average, by the end of the year, we think interest rates could be lowered to around 3.1%. As you can see in the first line, we expect Korea to have its first rate cut in the third quarter.

It would be helpful if you could say that you are expecting a rate cut and are expecting one more rate cut in the fourth quarter, and it seems that you are expecting two rate cuts by the end of the year. Ultimately, what conditions need to be met for a rate cut in the domestic market are the aspects that we have been emphasizing for about two years. In the case of our country, although it is an export-driven country, when deciding on monetary policy, especially at the time when we continued with a high and prolonged interest rate, the domestic contribution rate had to continue to decline for the interest rate cuts to occur. We have experienced patterns where domestic contributions continued to decline, and it seems that we expect this trend to continue until the third quarter. Also, we will discuss supplementary budgets later on, but for now, it is necessary to raise long-term interest rates.

It is our conclusion that it is difficult to act on the factors immediately. So, overall, we expect levels to trend downward, and it would be good if you understand that. First of all, the Monetary Policy Committee meeting is scheduled for this Thursday in May. Uh, after the interest rate hike in the United States in April, the governor went abroad to review the monetary policy, and there have been some statements about it becoming an issue, rather than domestic interest rates stabilizing, with a slight selling pressure causing interest rates to rise again. Recently, there have been signs of this. In May, the key points to watch at the Monetary Policy Committee meeting are two. Among them, I think the first one will ultimately be about the headline inflation path. Because the governor, from the New Year's address until the Monetary Policy Committee meetings in January, February, and April, has given signals regarding the pivot, which is why.

Differentiation in monetary policy by country can be possible, and opinions have been maintained that focusing more on domestic conditions could lead to the execution of monetary policy. Additionally, we have not ruled out the possibility of a rate cut in the second half of the year in South Korea. Therefore, at the press conference in April, the Governor mentioned the conditions that were last discussed. If the headline inflation exceeds 2.3 by the end of the year, they would not consider a rate cut, but if it falls below 2.3, they could consider it. Of course, we believe that this 2.3 figure may change at the May Monetary Policy Meeting. However, since the inflation path is crucial, it would be good to verify the case we have estimated. You may refer to the table on page 3, where two items are located at the far right.

When you look at the table, from 2002 to the average of 21 years until 23 years, we have brought the average, but the calculation method is very simple. First of all, for example, in January, from 2002 to 21 years, there would have been a 20-month mom growth rate, and in February, there would have been a 20-month growth rate compared to the previous month. So, we calculated the average mom growth rate for each of the 20 months and since the inflation rate has been announced up to April, you can consider the average growth rates for May and June by multiplying them. Anyway, the important thing is the year-end numbers. So, if you look at the two numbers at the end of December 2024, you will see the numbers 2.15 and 2.17. Then, if you round to the nearest second decimal place, the number will be 2.2. Of course, in the past 20 years, there were oil prices, public utilities, and so on.

Considering the cost of living, it could increase more than this, but what I am saying is that when you take into account the seasonality of 20 years, around February 15th to 17th, it tends to decrease in late November. In other words, the inflation path that we are looking at is expected to decline in the second half of the year and then rise slightly at the end of the year due to seasonality. We are aware that the inflation level reflecting this seasonality is 2.2%, and that's why probably the number will be around 2.3 in May. The economic outlook for May will be announced together, and it is our judgment that it will be difficult to make a dramatic upward adjustment in this regard. In the economic outlook for February, we set the basic outlook for oil prices at $82 as we import from Dubai, and based on that, we projected the inflation rate for this year to be 2.6. However, in February as well, regarding the scenario for...

The price of oil has risen by about 8 dollars, and if the average price of Dubai crude oil this year is 90 dollars, the forecast is that our country's headline CPI, which is the consumer price index, will increase by about 0.2. However, after the economic forecast announcement in February for March, April, and May, the average price of Dubai crude oil has increased by about 3 dollars to around 85 dollars over the three months. Therefore, we believe that the possibility of significantly and meaningfully raising the headline price level itself in the bond market, as mentioned earlier, is low. Therefore, it may be an opportunity to explore a rate hike in the second quarter overall. We think that the Monetary Policy Committee that can support our opinion may be able to be a Monetary Policy Committee that can support our opinion. If you understand that we are making short-term forecasts, it would be helpful. Additionally, the second point is ultimately about domestic demand.

It's because the growth rate in Korea is doing very well in the first quarter. As I mentioned earlier, domestic demand needs to have negative growth, but in the first quarter, the growth rate was good based on the surprise of domestic demand. As you can see here, the actual contribution of domestic demand increased by 0.4%, with construction investment rising from -0.7% to +0.4%. Also, in the case of private consumption, which includes construction investment, eventually, it turned back to a positive trend. Therefore, overall, we believe that the easing cycle in Korea can be about a month ahead of the United States. The pricing adjustments have been reflected, and in the first quarter, with the positive trend through domestic demand, some delayed situations occurred, looking towards the fourth quarter. However, despite that, the main reason for the good performance in the domestic sector was construction.

Investment surprised and as a result, the construction investment base, construction completed, showed a good trend, so we judged that the domestic market performed well and announced it through our research department. However, as you can see here, you can see that the actual construction completed amount has increased significantly. You can also see that the components of the construction completed, such as architectural and civil engineering construction, have shown a sharp increase in the chart. However, when you look at the leading indicators of construction completed, the growth rate compared to the same month of the previous year for the amount of construction awarded, the growth rate compared to the same month of the previous year for the number of building permits issued, the yy growth rate, and the Yi growth rate for the construction start status by area, and finally, the Yi growth rate for the number of building permits in the construction permit status, you can see that the leading indicators are all turning downward. And that's why we

Due to this, I think there is a high possibility that the construction investment amount will deteriorate even more next year than in the second half of this year. I believe it will be difficult to show a sustainable recovery momentum in domestic demand itself. Looking back, ultimately, the points we have been emphasizing for the past two years are as follows: when Korea continues the higher for longer policy, common patterns of interest rate cuts emerge, such as an increase in the contribution of electricity bills to domestic demand. However, in the first quarter, it turned positive again after two consecutive quarters, but we focused on the recovery momentum of domestic demand in the first quarter. If there is a decline, it will show a weak path in retail sales in the third quarter. Then, in 2002 and 2011-2012, when the Bank of Korea pursued higher for longer policies, there were parts that were cut for the second consecutive time.

Before confirming, the fact that a second consecutive negative growth occurred can be seen as a monthly indicator. So, before confirming that, we had implemented a rate cut during that quarter. The conclusion is that we can also confirm the negative growth in the second quarter this time, and we will be able to confirm the negative growth in the third quarter. If retail sales continue to show weakness in the third quarter, based on our past patterns, the possibility of a rate cut is still open. Therefore, even after the May revised economic forecast announcement, one member of the Monetary Policy Committee provided forward guidance for the next three months, maintaining the possibility of a rate cut despite the disappearance of these factors. Considering the leading indicators of these domestic parts, we will definitely

It is difficult to assert with 100% certainty that the disappearance of the minority shareholders of Forward Guidance will happen. It would be good to consider this as my opinion. Therefore, from the perspective of inflation and domestic demand, interest rates are expected to decline in the second half of the year. It is recommended to seek opportunities to expand the proportion of bonds in the second quarter. We have shown evidence supporting our opinion, and finally, I will only mention one supplementary budget. We will conclude the domestic bond announcement. By March, it has been confirmed that accumulated tax revenue for the first quarter was rough. In reality, as you can see in the third line from the end, similar to last year, corporate taxes were not paid properly. Also, in March of this year, Samsung Electronics reported an operating loss for the first time in 50 years since 1972, and did not pay corporate taxes, which further exacerbated the disparity.

What we are presenting here is the first outlook for tax revenue. When you look at the number, it says 367.3, which is not our estimate but the amount the government can collect. We already have numbers up to the first quarter, so by converting it to an annual basis, the shortfall can be calculated as 27.7 at the end of the table. This indicates that, similar to last year, there will be a significant tax revenue shortfall. Therefore, there is an issue remaining where additional deficit bonds may need to be issued through a supplementary budget. About 71% of the deficit bonds were issued due to tax revenue shortages on average, so there could be a tremendous amount of issuance, around 19 to 20 trillion won, in the second half of the year. This is a bearish material in terms of supply, but we here.

When you look at the page, if you look at the corporate tax progress rate and the income tax progress rate for the past 5 years or 10 years, you can see that for income tax, even if you look at the average of 5 or 10 years, it tends to be higher in the 2nd and 3rd quarters than the 1st quarter, and higher in the 2nd and 4th quarters. Especially for corporate taxes, it is confirmed that they are paid much more during the midpoint period when prepayments are possible in the 3rd quarter than in the 1st quarter. Therefore, the current monetary policy is crucial for us to focus on domestic demand. Although we mentioned that the growth rate of the government and patterns related to tax revenue are crucial, the progress rate of tax revenue is particularly important for exports. Ultimately, when viewed cyclically, the outlook for this year and next year's growth rate is upward in the patterns coming from our country's outlook, so the possibility of following this pattern is still open. If you look at the end of the second line here, as we mentioned earlier, the insufficient 10.27 trillion won is a concern.

Following this pattern, if the middle union is well passed, and if income tax is further passed in the second quarter, the shortfall compared to the government's forecast could be limited to 3-4 trillion won. In that case, the estimated deficit in national debt issuance would also decrease to the 2 trillion won range. This can be seen as a surprising ingredient for the bond market. However, rather than considering this issuance as a basic scenario, the government is already aware of these patterns, so it could serve as a justification for the government to decide after observing the government's tax collection until September, similar to last year. Therefore, as mentioned earlier in the summer, it is judged that the supplementary budget is unlikely to immediately affect long-term interest rates at the beginning of the second half of the year. Therefore, we believe that, as we mentioned earlier, in the second quarter, through strategies such as duration or increasing weight.

We need to look for opportunities to make a little profit from our capital, that's our conclusion. You can consider it as the end.

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"시장은 세 번까지 믿어본다" 국내 채권 전망(하나증권 리서치 하반기 전망 포럼)

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