Spillover Effects of United States' Unconventional Monetary Policy on Korean Bond Markets: Evidence from High-Frequency Data

We empirically investigate the effects of US unconventional monetary policy (UMP) on Korean bond markets using a high-frequency event-study approach. We find that: (1) Not every instance of UMP-related news affects the domestic bond yields at daily frequency; (2) UMP news affects only short-term foreign bond investment with high-frequency arbitrage opportunities; (3) Factor analysis suggests that net foreign bond investment is affected more by expectation on future US short-term policy rates compared to long-term risk premia in the US Treasury market; and (4) Credit default swap premium for South Korea, with proxy local risk factor, also affects net foreign bond investment. Based on our empirical findings, we conclude that, while push factors do not dominate pull factors, the Korean bond market is not a "safe haven" from the normalization of US monetary policy and regulators should examine closely the share and composition of foreign bond investment.