Foreign Investors Sell Large Volumes of Three-Year Treasury Bond Futures
Preference Shifts Toward Long-Term Bonds
On July 7, government bond yields rose across the board. This was due to lingering uncertainty stemming from U.S. President Donald Trump's "reciprocal tariff letter."
On this day, in the Seoul bond market, the yield on three-year government bonds closed at 2.482% per annum, up 1.5 basis points (1bp=0.01 percentage points) from the previous trading day.
The yield on ten-year bonds rose by 1.2bp to 2.840% per annum. The five-year and two-year bonds closed at 2.637% and 2.453% per annum, respectively, up 1.7bp and 0.7bp each.
The yield on twenty-year bonds increased by 2.0bp to 2.845% per annum. The yields on thirty-year and fifty-year bonds rose by 2.2bp and 2.1bp, closing at 2.749% and 2.647% per annum, respectively.
As uncertainty over U.S. tariff policy grew, the domestic bond market responded sensitively. President Donald Trump announced that, starting at 1:00 a.m. KST on July 8, he would sequentially send letters specifying reciprocal tariff rates to U.S. trading partners. However, the specific countries targeted and the tariff rates have not yet been disclosed.
In response, the Korean government urgently dispatched Yeo Han-koo, head of trade negotiations at the Ministry of Trade, Industry and Energy, and Wi Sung-lac, director of national security at the National Security Office, to Washington, D.C. to address the situation.
In the bond market, a clear shift in foreign investors' positions was observed. Foreign investors were net sellers of 7,758 contracts of three-year treasury bond futures, while they were net buyers of 1,522 contracts of ten-year treasury bond futures, indicating a preference for longer maturities.
Meanwhile, in the morning, a competitive auction for three-year government bonds (KTB02250-2806) worth 4.3 trillion won attracted bids totaling 11.623 trillion won, resulting in a bid-to-cover ratio of 270.3%. Despite tariff risks, demand for government bonds remained robust.
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