3-Year Treasury Bond Yield at 2.336%... Short- and Medium-Term Yields Fall, Ultra-Long-Term Yields Rise

Early Session Bond Yields Rise on U.S. Fiscal Deficit Concerns
Short- and Medium-Term Yields Fall on Rate Cut Expectations from Monetary Policy Board

On May 22, yields on Korean Treasury Bonds ended mixed, with short- and medium-term maturities declining while ultra-long-term maturities rose.

On this day in the Seoul bond market, the yield on three-year Treasury Bonds closed at 2.336% per annum, down 0.9 basis points (1bp=0.01 percentage point) from the previous trading day. The 10-year yield fell by 0.5bp to 2.755% per annum. The five-year and two-year yields dropped by 0.5bp and 0.6bp, closing at 2.493% and 2.341% per annum, respectively.

In contrast, the yield on the ultra-long-term 20-year bond rose by 0.2bp to 2.722% per annum. The 30-year and 50-year yields increased by 0.3bp and 3.5bp, reaching 2.632% and 2.525% per annum, respectively.

Previously, the yield on the 10-year U.S. Treasury Bond surged by 11.40bp to 4.6020% the previous day. The 30-year yield soared to 5.0940%, the highest level since November 2023.

This sharp rise in U.S. Treasury yields is attributed to two factors: the weak demand in the 20-year U.S. Treasury auction held the previous day, and heightened concerns over the increase in the federal fiscal deficit and debt due to tax cut legislation from the Donald Trump administration.

Hwang Jiyeon, a researcher at Korea Investment & Securities, explained, "In the $16 billion 20-year Treasury auction, the yield rose to 5.10%, up from 4.81% last month, highlighting concerns over demand," and added, "The Trump administration's fiscal policies, especially large-scale tax cuts, are expected to worsen the fiscal deficit, which has contributed to increased volatility in the bond market."

Yields on Korean Treasury Bonds had initially climbed across the board in the morning, reflecting the sharp rise in U.S. Treasury yields. However, in the afternoon, short- and medium-term Korean Treasury Bonds closed lower than the previous day as bargain buying intensified ahead of the Monetary Policy Board meeting scheduled for next week in May.

The market expects the Bank of Korea to cut the base interest rate at the Monetary Policy Board meeting to be held on May 29.

Meanwhile, on this day, foreign investors were net sellers of 1,025 contracts of three-year Treasury Bond futures and 13,390 contracts of ten-year Treasury Bond futures.