Korean Treasury Yields Mostly Decline on Hopes for U.S. Rate Cut

Korean Treasury Bond Yields Mostly Decline
Amid Expectations for U.S. Rate Cut

As expectations for a U.S. benchmark interest rate cut have grown, yields on Korean Treasury bonds mostly declined. Bond yields and prices move in opposite directions, so a drop in yields means a rise in prices.

Yonhap News Agency

On October 2 in the Seoul bond market, the yield on three-year Treasury bonds closed at 2.581% per annum, down 1.5 basis points (1bp = 0.01 percentage point) from the previous trading day.

The yield on ten-year bonds fell by 0.1 basis points to 2.959% per annum. The five-year and two-year bonds each declined by 1.9 and 1.1 basis points, closing at 2.729% and 2.518% per annum, respectively. The yield on twenty-year bonds rose by 0.1 basis points to 2.911% per annum. Yields on thirty-year and fifty-year bonds dropped by 0.8 and 0.9 basis points, respectively, ending at 2.821% and 2.684% per annum.

The partial shutdown of the U.S. federal government appears to have fueled expectations of a rate cut, pushing yields lower. Fundamentally, concerns about the economy due to the shutdown have heightened risk aversion and increased demand for safe assets. In addition, with the release of key U.S. economic indicators-such as the September nonfarm payrolls report-being suspended due to the shutdown, it has become difficult for the data-dependent U.S. Federal Reserve to justify deviating from its "dot plot" rate projections. This has led to growing expectations of a possible rate cut in October.

Data substituting for the missing government releases also heightened concerns about an economic downturn. The U.S. ADP National Employment Report released overnight showed that private sector employment in September fell by 32,000 compared to the previous month, significantly below the market forecast of 50,000. This result, which sharply missed experts' expectations of a 45,000 increase, further fueled concerns about the economy and expectations for a rate cut.

However, foreign investors continued to show strong selling activity, with net sales of 5,475 contracts of three-year Treasury bond futures and 11,648 contracts of ten-year Treasury bond futures on the day. Recently, foreign investors have been actively unwinding their positions ahead of an extended holiday period, during which it would be difficult to respond to market volatility.