Fear of COVID-19... 3-Year Government Bond Hits 0% for the First Time (Comprehensive)

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] Due to concerns over the spread of the novel coronavirus infection (COVID-19), the bond market has shown an ultra-strong trend, with the 3-year government bond yield recording below 1% intraday for the first time ever.

On the 9th, in the Seoul bond market, the 3-year government bond yield was traded at an annual rate of 0.998% immediately after the market opened.

It then rose slightly, and as of 10:06 a.m., it recorded an annual rate of 1.019%, down 6.1 basis points (1bp = 0.01 percentage points) from the previous trading day. This is below the previous record low closing yield of 1.116% on the 4th for the 3-year bond. At the same time, the 5-year bond yield also traded down 7.7bp to 1.106%, with both the 3-year and 5-year yields falling below the base rate (annual 1.25%).

The 10-year bond yield fell 8.3bp to 1.287% annually. The 20-year and 30-year bonds also dropped 10.0bp and 11.0bp, trading at 1.334% and 1.345% annually, respectively.

The sharp intraday drop of government bond yields to below 1% is due to a rapid shift toward safe-haven assets. Investors, increasingly worried about an economic recession amid signs of a COVID-19 pandemic, are flocking to bonds. It is analyzed that the flight to bonds will continue for some time due to the inevitable real economic impact caused by COVID-19.

There is also speculation that the Bank of Korea may soon cut the base interest rate, and that Korea’s base rate could fall below 1% this year, which is cited as a decisive reason for the sharp drop in government bond yields. This means bond market investors are betting on the possibility of a 'zero interest rate' era. Experts have already taken it as a given that the Bank of Korea will cut the base rate by 25bp at the April Monetary Policy Committee meeting. If the Bank of Korea cuts rates once more in the second half of this year, there is a considerable possibility that Korea’s base rate will fall to the 0% range (0.75%). Reflecting this situation, the bond market expects the 3-year government bond yield to be in the 0.8?0.9% range.

Government bond yields in major countries such as the United States and Germany are also falling simultaneously. According to US economic broadcaster CNBC, the US 10-year Treasury yield fell below 0.5% for the first time ever during trading on the night of the 8th (local time). The 10-year yield dropped to 0.499% before currently hovering around the 0.5% level. The US 30-year Treasury yield also fell below 1%. Germany’s 10-year government bond yield dropped to a record low of -0.72%. Gong Dong-rak, a researcher at Daishin Securities, said, “There is a growing consensus that in times of crisis, bonds are the only safe haven,” and predicted, “The bond market rally will continue for the time being.”

This content was produced with the assistance of AI translation services.