"April Monetary Policy Committee Meeting Expected to Maintain Dovish Hold... Limited Room for Government Bond Yield Rebound"

The Financial Monetary Policy Committee of the Bank of Korea is expected to deliver a 'dovish (preference for monetary easing)' message along with maintaining the base interest rate in April, according to securities firms' analysis. Accordingly, it is anticipated that the potential for interest rate rebound in the government bond market will be limited.

On the 15th, Yoo Sang-sang, a researcher at Korea Investment & Securities, stated in his report titled "Rate Cut More Likely in May than April," "Since three rate cuts have already been made, bringing the rate closer to the neutral level, the Bank of Korea will prefer to hold the rate steady first and then cut, rather than continuous cuts."

Similar to the January Monetary Policy Committee meeting, while acknowledging the need for future rate cuts, it is expected that the committee will choose to hold the rate steady at the upcoming meeting on the 17th to observe the evolving situation. Researcher Yoo pointed out the ongoing uncertainties such as U.S.-imposed reciprocal tariffs, the Bank of Korea's tendency to avoid consecutive cuts, and the current 2.75% level being closer to the neutral rate, explaining that "(the Monetary Policy Committee) will opt for additional observation compared to April and a possible rate cut in May."

There is also an analysis that the possibility of a hawkish (preference for monetary tightening) message from this week's Monetary Policy Committee is low. Researcher Yoo explained the background by stating, "The exchange rate and household debt are showing positive trends." Accordingly, it is expected that "the (government bond) interest rate rebound due to the April rate hold will be limited."

However, he added, "Unless a clear signal emerges at the April Monetary Policy Committee that Korea's terminal interest rate level could fall below 2% from 2.25%, further interest rate declines at the current levels of 2.40% for the 3-year Treasury and 2.70% for the 10-year Treasury will face significant level pressure."

Researcher Yoo maintained his outlook for a steepening expansion in the first half of the year, stating, "In the long term, as tariff uncertainties gradually diminish, the government bond market's focus is likely to shift to supply and demand. If supply-demand issues such as the supplementary budget (Chugyeong) become more active, it could contribute to increased interest rate volatility within the year."

Last week, the interest rate spread between the 3-year and 10-year Treasury bonds widened from 22.7 basis points (1bp equals 0.01 percentage points) to 28.9 basis points.