3-Year Treasury Bond Yield Hits Yearly Low
Dovish Shin Seong-hwan's Monetary Policy Committee Meeting Leads to Rate Drop
October Rate Cut Possibility Seen Increasing
Shin Sung-hwan, a member of the Monetary Policy Committee of the Bank of Korea, is speaking at a press conference. (Photo by Bank of Korea)
With the Bank of Korea's base rate decision scheduled for next week, market expectations for a rate cut are growing. Recently, as key Bank of Korea officials have consecutively expressed dovish (rate cut-preferred) views, market interest rates have preemptively reflected this, falling to the lowest levels of the year.
On the 30th, in the Seoul bond market, the 3-year government bond yield was at 2.801% as of 9:40 a.m., marking the lowest level of the year. This is below the previous low of 2.806% recorded on the 5th of last month, when the stock market and interest rates plunged due to concerns over a U.S. economic recession. Currently, the Bank of Korea's base rate is around 3.5%, but the market interest rates have preemptively priced in two or three rate cuts.
The 3-year government bond yield was close to 3% until early this month but continued its downward trend toward the end of the month. In particular, after the press briefing by Shin Sung-hwan, a member of the Bank of Korea's Monetary Policy Committee, on the 25th, expectations for a rate cut in October increased, clearly reflecting this in the market.
At the briefing, Commissioner Shin defined himself as dovish and said, "Our economy does not have the luxury to wait until the housing price rise clearly slows down." This is interpreted to mean that although the base rate was held steady in July due to concerns over financial instability caused by excessive housing price increases, he may express an opinion in favor of a rate cut in October to address sluggish domestic demand.
The next day, on the 26th, Jang Yong-sung, another Bank of Korea Monetary Policy Committee member, emphasized the importance of policy rate cuts and government macroprudential policy coordination by citing overseas cases such as Canada and New Zealand in a financial stability report. He suggested that financial imbalances that may arise from rate cuts could be addressed through proactive government policies like housing supply and household debt management, hinting at the possibility of future base rate cuts.
With two of the seven Monetary Policy Committee members publicly making dovish remarks, market interest rates immediately reflected this. Yoo Sang-young, a researcher at Korea Investment & Securities, said, "After Shin Sung-hwan's briefing, the possibility of an October rate cut was preemptively priced in, causing government bond yields to fall," and added, "Commissioner Shin had prioritized caution regarding housing price momentum as recently as the 5th, but this briefing showed a shift in sentiment within the Bank of Korea."
However, contrary to market expectations, there is also a possibility that the base rate cut may be postponed from October to November. This is because the household debt issue, which has been a stumbling block for rate cuts, has not clearly improved as of September.
According to the banking sector, the amount of new housing mortgage loans for home purchases at major commercial banks has not significantly decreased this month. The total amount of newly issued individual housing mortgage loans for home purchases at the five major banks up to the 26th of this month was 7.8466 trillion won. As of the 23rd, excluding the three days of the Chuseok holiday, the daily average was 341.2 billion won, showing only a 5% decrease compared to the previous month.
Im Jae-kyun, a researcher at KB Securities, stated, "Household debt has increased over the past five months, and even if household loans decrease in September, it is necessary to verify with more than one month's data whether the slowdown is a trend. Therefore, after a minority opinion in October, I expect a rate cut in November."
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