3-Year Korean Treasury Bonds Reenter 3% Range... Surge Amid Renewed Inflation Concerns

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] Concerns about inflation have resurfaced, pushing government bond yields back into the 3% range.

On the 31st, in the Seoul bond market, the 3-year government bond yield closed at an annual rate of 3.027%, up 8.5 basis points (1bp=0.01 percentage point) from the previous trading day.

This marks the first time in six trading days since the 23rd (3.018% annually) that the 3-year yield has reached the 3% level. The 10-year yield rose 11.5bp to 3.326% annually. The 5-year and 2-year yields increased by 11.2bp and 9.1bp, closing at 3.256% and 2.778% annually, respectively.

The 20-year yield rose 6.7bp to 3.236% annually. The 30-year and 50-year yields increased by 6.3bp and 5.7bp, recording 3.133% and 3.112% annually, respectively.

Yields, which had recently declined amid expectations of an inflation 'peak out,' reversed their downward trend sharply as risk asset preference and high inflation concerns coincided on this day.

While the U.S. financial markets were closed the previous day for Memorial Day, U.S. President Joe Biden expressed a strong commitment to curbing inflation on the morning of this day.

In an op-ed, President Biden made it clear that the Federal Reserve (Fed) holds the primary responsibility for price stability, emphasizing that while he would not interfere with the Fed, high inflation must be controlled.

Additionally, Germany's consumer price index (CPI) for May rose 7.9% compared to the same month last year, marking the highest level since 1973 and intensifying inflationary pressures.

In particular, energy prices surged 38.3% and food prices jumped 11.1%, lending weight to expectations of a 50bp rate hike by the European Central Bank (ECB). Consequently, Germany's 10-year government bond yield surged 9.25bp.

Park Kwang-nam, a researcher at Mirae Asset Securities, explained, "The main drivers of Germany's inflation increase were the sharp rises in energy and food prices," adding, "Energy and food prices raise concerns about a global economic slowdown and reduce confidence in the inflation 'peak out.'"