On the 22nd, in the Seoul bond market, government bond yields showed a mixed and chaotic trend by maturity. This was interpreted as a result of the interplay between domestic and foreign interest rate hike cycles and future economic prospects, leading to unclear directional expectations among investors.
On that day, the 3-year government bond yield decreased by 1.1bp (1bp=0.01 percentage points) compared to the previous trading day, closing at an annual rate of 2.999%. The short-term yields, which are sensitive to the benchmark interest rate, fell, seemingly reflecting the recent stance of the Bank of Korea to maintain its monetary policy tone and expectations for price stabilization. At the same time, this is also interpreted as a concern over a short-term economic slowdown.
On the other hand, in the long-term bonds, the yield on the 10-year government bond rose by 1.7bp, recording an annual 3.359%, showing an upward trend. The increase in long-term yields is analyzed as the market considers that price pressures may rise again in the long term, or may be influenced by fluctuations in global bond market yields. In particular, fluctuations in U.S. Treasury yields often directly reflect in domestic long-term bond yields.
In other major bonds, the 5-year yield rose by 0.5bp to an annual 3.245%, while the 2-year yield fell by 1.3bp to end trading at an annual 2.823%. Among ultra-long-term bonds, the 20-year yield slightly fell to an annual 3.337%, while the 30-year and 50-year yields closed at annual 3.249% and annual 3.153%, respectively. This overall trend is due to differences in yield changes across various maturities, which also suggests structural changes such as flattening or steepening of the curve.
In the market, whether the Federal Reserve and the Bank of Korea will cut interest rates next year has become the most important variable. In the context where the consumer price inflation rate cannot yet be considered fully stable, the market is cautiously seeking direction.
The chaotic trend of such bond yields may present a clearer direction in the future as the speed of economic recovery and the tone of central bank policies become clearer. If specific signals of monetary policy easing materialize in the first half of next year, a decline in yields primarily of short-term bonds may officially begin; conversely, if emphasis is placed on the recovery of prices and growth momentum, the volatility of long-term bond yields may increase.