[Good Morning Stock Market] US Treasury Yield Surges... "KOSPI Expected to Start Lower"

New York Stock Market Closes Lower Across the Board
Weak Demand for 7-Year US Treasury Auction
Yield Curve Rises Broadly
Beige Book: "Economic Activity Continues to Expand Through Mid-May"

[Image source=Yonhap News]

The Korean stock market is expected to start lower on the 30th. This is due to the impact of the U.S. stock market's broad decline following a sharp rise in U.S. Treasury yields caused by weak demand.

On the previous day (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 38,441.54, down 411.32 points (1.06%) from the previous trading day. The S&P 500 index fell 39.09 points (0.74%) to 5,266.95, and the Nasdaq index dropped 99.3 points (0.58%) to 16,920.58.

Investor sentiment was significantly dampened by the sharp rise in Treasury yields and concerns over the timing of the Federal Reserve's (Fed) interest rate cuts. The Treasury conducted a $44 billion auction of 7-year bonds on the day, with yields set at 4.65% due to weak demand. It was also confirmed that demand was weak in the recent auctions of 2-year and 5-year U.S. Treasury notes held the day before.

As a result, a 'bear steepening' occurred, where long-term yields rose more sharply than short-term yields, which is seen as a burden on the stock market. Typically, short-term (2-year) yields are sensitive to Fed monetary policy, while long-term (10-year) yields serve as a benchmark for interest rates affecting the real economy.

Ahead of the June Federal Open Market Committee (FOMC) meeting, the Beige Book released indicated that economic activity continued to expand steadily from early April through mid-May. However, in most regions, inflation rates remained moderate, and consumers showed strong price resistance, leading to reduced corporate profits.

Considering these factors, the Korean stock market is also expected to show weakness. The rise in global Treasury yields and the strength of the dollar are likely to increase downward pressure on the Korean won.

Seokhwan Kim, a researcher at Mirae Asset Securities, stated, "The USD/KRW exchange rate will surpass 1,370 during the day," adding, "This could be a factor increasing downside risk for the stock market." He further analyzed, "The KOSPI is expected to start down by 0.3 to 0.6%."