Safe-Haven Demand Surges as Trump Announces Additional Tariffs
As signs of renewed tensions in the US-China trade conflict emerged, a strong preference for safe-haven assets was observed in the bond market on October 13. Investors flocked to government bonds, leading to a simultaneous decline in yields across all Treasury maturities.
On this day in the Seoul bond market, the yield on three-year Treasury bonds closed at 2.554% per annum, down 3.7 basis points (1bp = 0.01 percentage point) from the previous trading day. The ten-year bond yield fell by 6.0 basis points to 2.904% per annum. The five-year and two-year bonds dropped by 5.4 basis points and 3.2 basis points, closing at 2.677% and 2.492% per annum, respectively. Among longer-term bonds, the twenty-year bond yield fell by 5.0 basis points to 2.861% per annum, while the thirty-year and fifty-year bonds each declined by 5.2 basis points, finishing at 2.767% and 2.629% per annum, respectively.
The background of this market volatility stemmed from negative developments originating in the United States. President Donald Trump strongly criticized China’s move to restrict rare earth exports and announced plans to impose an additional 100% tariff on Chinese products starting November 1, heightening tensions between the two countries. Following these remarks, global investor sentiment weakened, and a clear shift of funds into safe-haven assets was observed.
However, President Trump later posted on Truth Social, stating that “the United States does not seek to harm China, but to help,” and that “President Xi Jinping would not want an economic recession either,” signaling a somewhat softened stance. Nevertheless, with tariff negotiations between the two countries remaining uncertain, analysts believe the trend of risk aversion is likely to continue for the time being.
On this day, foreign investors joined the bond rally by making a net purchase of 8,729 contracts of three-year Treasury bond futures and 845 contracts of ten-year Treasury bond futures.
Experts view the decline in yields as a temporary phenomenon. Kim Seongsu, a researcher at Hanwha Investment & Securities, said, “Considering concerns about a US government shutdown, the Federal Reserve’s cautious approach to rate cuts, and the Bank of Korea’s still-prudent monetary policy stance, it is unlikely that the decline in yields will become a sustained trend,” adding, “This phase should be seen as an expansion of volatility rather than a shift to a bull market.”
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