Government Bond Yields Soar Across All Maturities, Hitting Annual Highs on Hawkish Monetary Policy Board Signal

The Monetary Policy Board of the Bank of Korea exhibited a hawkish (preference for monetary tightening) stance, causing government bond yields to surge across all maturities and hit new annual highs on January 15.

On this day, in the Seoul bond market, the yield on three-year government bonds closed at 3.090% per annum, up 9.4 basis points (1bp = 0.01 percentage point) from the previous trading day. The 10-year bond yield rose by 7.5 basis points to 3.493% per annum. The five-year and two-year bond yields also increased by 8.4 and 6.8 basis points, closing at 3.324% and 2.896% per annum, respectively. The 20-year bond yield ended at 3.441% per annum, up 6.3 basis points; the 30-year bond at 3.334% per annum, up 5.9 basis points; and the 50-year bond at 3.228% per annum, up 5.5 basis points. All maturities recorded their highest levels of the year.

Foreign investors were net sellers of 35,035 contracts of three-year government bond futures, while they were net buyers of 7,220 contracts of 10-year government bond futures on this day.

On January 15, the Monetary Policy Board held a meeting to determine the direction of monetary policy and unanimously decided to keep the benchmark interest rate at 2.50% per annum. This marks the fifth consecutive freeze since the rate cut in May of last year. Notably, the term "possibility of a rate cut" was completely omitted from the board's statement, signaling a potential shift in monetary policy stance. The message was interpreted to mean that, depending on future economic conditions, the board could consider not only holding or cutting rates, but also raising them.

Bank of Korea Governor Rhee Changyong stated at a press conference held immediately after the board meeting, "I did not say we would raise rates, but I wanted to signal that rate cuts would not continue indefinitely."