This study quantitatively examines the transmission channels through which domestic and external monetary policy shocks affect the yields of Korean Treasury Bonds (KTBs). To this end, it proposes a new methodology that decomposes long-term KTB yields into expected policy rate paths and term premia and analyzes the interaction between monetary policy and the government bond market through this decomposition. Specifically, the study develops and estimates a four-factor linear term structure model that incorporates gradual structural changes in the level of the KTB yield curve. A comparison with the conventional three-factor model shows that the proposed four-factor model is statistically superior.

The estimation results indicate that, when yields are decomposed into trend and cyclical components, cyclical fluctuations account for a larger share of yield variation at shorter maturities, whereas trend components dominate at longer maturities. The expected policy rate path is extracted from the estimated term premia, suggesting that policy rates are expected to remain broadly stable in the near term and decline gradually thereafter. Analysis of the interaction between monetary policy and the bond market shows that policy rate shocks significantly raise expected policy rates, while shocks to expected policy rates also lead to increases in the actual policy rate. This implies a high degree of mutual credibility between the central bank and the government bond market.

Using this decomposition, the study examines the effects of domestic and U.S. monetary policy shocks on KTB yields. Domestic monetary policy shocks generate significant spillovers across the entire yield curve, from short- to long-term maturities. Short-term yields respond mainly through changes in the expected policy rate path, whereas long-term yields respond more strongly through adjustments in term premia. In contrast, U.S. federal funds rate shocks do not exert statistically significant effects on KTB yields. However, U.S. forward guidance and quantitative easing shocks exert meaningful impacts. Quantitative easing shocks produce larger short-term effects, while forward guidance shocks exhibit greater persistence. Nevertheless, these spillovers are considerably shorter-lived than those from domestic monetary policy shocks, highlighting the relative independence of Korea’s monetary policy.

The study also analyzes the Korean corporate bond market in the context of domestic and external monetary policy. Although the corporate bond market has expanded steadily in terms of outstanding issuance, secondary market liquidity remains limited, with turnover ratios substantially lower than those in the government bond market and trading concentrated in financial bonds. U.S. monetary tightening is found to reduce corporate bond trading volumes and widen credit spreads, with a 25 bp increase in the U.S. policy rate leading to an immediate spread widening of 11―13 bp. Over a horizon of one to three months, corporate bond spreads increase by 28―56 bp. Domestic monetary policy shocks also have significant effects on corporate bond yields, with particularly pronounced responses in lower-rated (BBB-) bonds. By contrast, firm-level financial conditions do not appear to systematically influence the sensitivity of corporate bond yields to U.S. monetary policy shocks, likely reflecting a flight-to-quality behavior during tightening episodes.

ABSTRACT

Preface
Summary

Chapter 1. Introduction
　References

Chapter 2. A Study on the Transmission Effects of Monetary Policy through the Estimation of KTB Term Premia
　Section 1. Introduction
　Section 2. Estimation of KTB Term Premia Incorporating Long-Term Trends
　Section 3. Spillover Effects of Domestic and External Monetary Policy Shocks on the KTB Market
　Section 4. Concluding Remarks
　References
　Appendix

Chapter 3. Effects of Domestic and External Monetary Policy Factors on Korea’s Corporate Bond Market
　Section 1. Introduction
　Section 2. Literature Review
　Section 3. Outstanding Issuance of Corporate Bonds in Korea
　Section 4. Trading Conditions in Korea’s Corporate Bond Market
　Section 5. U.S. Monetary Policy and Korea’s Corporate Bond Market: A Focus on Trading Volume
　Section 6. U.S. Monetary Policy and Korea’s Corporate Bond Market: A Focus on Interest Rates
　Section 7. Spillover Effects of Monetary Policy Shocks on the Domestic Corporate Bond Market
　Section 8. Concluding Remarks
　References
　Appendix

Chapter 4. Conclusions and Policy Implications
　References

Abstract