10-Year Bond Yield Surpasses 4.5% for First Time Since 2007
Raises South Korea's Long-Term Bond Rates
Upward Pressure Continues Amid Consecutive Negative Factors
With the possibility of prolonged high interest rates, the yield on the U.S. 10-year Treasury bond has reached its highest level in 16 years, raising expectations of increased loan interest burdens in South Korea. Some analysts are increasingly concerned as they see continued upward pressure on long-term U.S. Treasury yields due to expanding strikes in the U.S. automotive industry and rising international oil prices.
The yield on the U.S. 10-year Treasury bond closed at 4.53% on the 25th (local time), marking the highest level since 2007. Since August this year, the 10-year Treasury yield has not fallen below the 4% range at closing, and last week it also broke through the psychological resistance level of 4.5%.
Long-term yields surged last week following the Federal Reserve's (Fed) 'hawkish pause.' Fed Chair Jerome Powell hinted at the possibility of prolonged tightening by stating after the Federal Open Market Committee (FOMC) regular meeting that the Fed is "prepared to raise rates further if deemed appropriate," and that the timing for rate cuts next year may be later than expected, triggering a ripple effect. Additionally, new unemployment claims data released on the day of the meeting showed the lowest level since January this year, demonstrating solid economic growth and influencing the rise in yields.
The day after the FOMC, yields fell by about 4 to 5 basis points (1bp = 0.01 percentage points) at closing amid concerns over a potential 'shutdown' (temporary suspension of U.S. federal government operations) due to failure to reach a budget agreement, but this was a temporary phenomenon. Yoonjung Park, a researcher at NH Investment & Securities, explained, "The yield decline seems to be due to the approaching shutdown deadline on the 30th of this month," but added, "Since yields have continued to rise in Asian markets afterward, it is not considered a significant drop."
Sticky Inflation Amid Strikes and High Oil Prices... "Above 5% Possible"
According to major foreign media on the 26th, Bill Ackman, chairman of Pershing Square and a U.S. hedge fund investor, also mentioned the automotive industry strikes and rising international oil prices after the FOMC, stating that "Considering the current economic situation, it is reasonable for the 30-year Treasury yield to rise to around 5.5%." He added, "The U.S. Federal Reserve will not be able to lower inflation to the target rate of 2%," and "If long-term inflation settles around 3%, the upward trend in long-term Treasury yields cannot be avoided."
Ahn Yeha, a researcher at Kiwoom Securities, said, "Oil prices continue to remain at high levels, and it is difficult to confirm a slowdown in economic indicators in the short term, so upward pressure is likely to persist at least until the November FOMC." Ahn also added, "The recent strikes by the major three automakers' unions could also be an inflationary factor."
In the case of long-term bonds, South Korea tends to follow the U.S. On the 25th, Bloomberg compared the movements of 5-year bond yields of 13 major emerging countries due to rising oil prices, and South Korea ranked around 5th, placing it in the upper-middle tier. Notably, the synchronization trend has become more pronounced this year, drawing attention from the Bank of Korea (BOK). In the 'BOK Issue Note' published this month, the BOK explained, "Over the long term, South Korea's government bond yields are estimated to be more influenced by fluctuations in U.S. Treasury yields as maturity lengthens."
In fact, South Korea's 10-year government bond yields have continued to rise this month, remaining in the 4% range for three consecutive trading days since the 21st. Seok Byunghoon, a professor of economics at Ewha Womans University, said, "After the U.S. debt ceiling negotiations were resolved, the U.S. government, needing operating funds, has been issuing long-term bonds, which has already contributed to the rise in yields," adding, "If U.S. Treasury yields rise further, South Korean bond yields will follow, and bank bond yields will also increase."
The rise in government bond yields is also affecting bank bond yields, which is likely to push up loan interest rates with a time lag. Sungjin Park, head of the bond market team at the Bank of Korea, explained, "Since domestic long-term interest rates have a high correlation with U.S. Treasury yields, the rise in U.S. long-term yields leads to upward pressure on bank bond yields, and some linked loan interest rates may be affected with a time lag of about one to two months."
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