'SVB Bankruptcy' Leads to Decline in Government Bond Yields Amid Easing Tightening Expectations

3-Year Bond at 3.435% per Annum, Down 26.8bp
5-Year Bond Yield Also Down 21.9bp

The bankruptcy of Silicon Valley Bank (SVB) in the United States is leading to expectations of easing monetary tightening in the U.S. Amid this, yields on both government bonds and corporate bonds have fallen across the board.

On the 13th, in the Seoul bond market, the yield on 3-year government bonds closed at 3.435% per annum, down 26.8 basis points (1bp = 0.01 percentage points) from the previous trading day.

[Image source=Reuters Yonhap News]

The 10-year bond yield fell 17.9bp to 3.405% per annum. The 5-year and 2-year yields dropped 21.9bp and 27.2bp, closing at 3.398% and 3.486% per annum, respectively. The 20-year yield declined 12.2bp to 3.375% per annum. The 30-year and 50-year yields fell 9.4bp and 9.3bp, recording 3.344% and 3.267% per annum, respectively. The yields on unsecured 3-year corporate bonds with AA- rating (4.149% per annum) and BBB- rating (10.580% per annum) also decreased by 24.7bp and 23.9bp, respectively, compared to the previous trading day.

Due to SVB's bankruptcy, the U.S. Federal Reserve's (Fed) tightening has been halted, causing yields on 2-year and 10-year U.S. Treasury bonds to plunge by more than 28bp and 20bp, respectively. This impact is interpreted as the reason domestic bond yields also showed a broad decline.

Jaekyun Lim, a researcher at KB Securities, explained, "As the effects of rate hikes appear in the U.S., similar to Korea's Legoland incident, the Fed will likely adopt a cautious stance on further rate increases. The possibility of a 50bp hike at the March Federal Open Market Committee (FOMC) meeting has effectively vanished, and the U.S. terminal rate forecast, which had been priced in up to 6% per annum, will also be lowered."

He added, "With the easing of concerns over Fed tightening, worries about additional rate hikes by the Bank of Korea will also diminish," and maintained, "The Bank of Korea is expected to keep the base rate unchanged through the end of the year."