TL;DRSouth Korea’s government bonds have lost 7.5% in 2026, the worst of any sovereign market globally, as the AI chip boom drives growth, inflation, and bets on at least three BOK rate hikes. On Monday the Kospi fell 8%, triggering a circuit breaker, while bond yields held near highs.
The AI boom that has made Samsung and SK Hynix trillion-dollar companies and sent the Kospi up roughly 80% is doing something unusual to South Korea’s bond market: destroying it.
Korean government bonds have lost 7.5% in 2026 in local-currency terms, the worst performance among 44 sovereign markets tracked by Bloomberg. The benchmark three-year yield has climbed to about 3.9%, its highest level since 2023. The swaps market is pricing in at least three rate hikes this year, which would take the Bank of Korea’s policy rate from 2.5% to 3.25%.
The cause is a growth story too strong for bonds to bear. Semiconductors now account for 37% of South Korea’s total exports, up from 20% a year ago. The AI-driven chip upcycle has pushed Q1 GDP growth to 1.7% quarter-on-quarter, the fastest in five years, and prompted the BOK to raise its full-year growth forecast to 2.6% from 2%.
The vicious cycle
