The 3-Year Korean Treasury Bond Yield Hits 1.609%, Highest in 28 Months

[Asia Economy Reporter Lee Seon-ae] On the 28th, yields on Korean government bonds rose across the board. The 3-year bond yield reached its highest level in 28 months.

On this day in the Seoul bond market, the 3-year maturity government bond yield closed at 1.609% per annum, up 4.3 basis points (1bp=0.01 percentage point) from the previous trading day.

This is the first time in 2 years and 4 months since May 30, 2019 (1.626%) that the 3-year bond yield has exceeded 1.6% per annum.

The 5-year bond yield rose 6.2 basis points to 1.950% per annum. This is the highest level since December 4, 2018 (1.976% per annum).

The 10-year bond yield increased by 8.8 basis points from the previous day to 2.256% per annum, surpassing 2.2% again for the first time in about 4 months.

With expectations that the Bank of Korea will raise its benchmark interest rate further, and following a sharp rise in U.S. Treasury yields overnight, domestic government bond yields also showed a broad upward trend.

On the 27th (local time), the U.S. 10-year Treasury yield exceeded 1.5% intraday for the first time in 3 months. This rise in U.S. Treasury yields reflects the possibility of tightening following the Federal Reserve's September Federal Open Market Committee (FOMC) meeting.

Accordingly, there are forecasts that domestic government bond yields will inevitably continue to rise until U.S. tapering (asset purchase reduction) begins.

Kim Ji-man, a researcher at Samsung Securities, analyzed, "As U.S. Treasury yields approach previous highs ahead of U.S. tapering, a rise in domestic bond yields is also inevitable. In 2013, when tapering was announced, yields rose to previous highs just before the actual tapering, and domestic yields showed similar movements during that period."

However, there are also forecasts that the directions of long-term yields in Korea and the U.S. will diverge by the end of the year. The rise in U.S. yields reflects expectations of economic expansion, while domestic yields are expected to reflect a 'peak out' of the economy.

Kang Seung-won, a researcher at NH Investment & Securities, said, "Even with the same tightening policy, if combined with economic downturn, it becomes a factor for long-term yield decline; if combined with upward revisions in economic assessments, it becomes a factor for long-term yield increase. Domestic long-term yields are expected to reverse downward reflecting the economic peak out, while U.S. long-term yields will rise until the end of the year as economic assessments are revised upward."