Korea-US 10-Year Treasury Bond Yields Fluctuate

Domestic up 1.87% and US up 1.25% Yesterday

[Asia Economy Reporter Minji Lee] The 10-year government bond yields in South Korea and the United States are on the rise. This is the result of a combination of expectations for economic recovery and concerns over fiscal expansion. However, the securities industry believes that since there are no signs of a sustained increase in inflation, the rise will not be enough to shock the stock market in the short term.

According to the Bond Information System of the Korea Financial Investment Association on the 16th, the 10-year Treasury bond yield closed at 1.871, up 4 basis points (1bp=0.01%) from the previous trading day, showing a level similar to that of April 2019. In the bond market, rising yields mean falling prices.

The sustained rise in yields appears to reflect high expectations for economic recovery, including concerns over absorbing existing deficit bonds and rising oil prices. When the economy enters an expansion phase, the possibility of re-flation (a state where prices rise moderately as the economy recovers from a recession, but not severe inflation) increases, causing long-term bond yields, which are influenced by inflation indices and economic recovery, to rise.

The situation is similar in the U.S. The 10-year U.S. Treasury yield rose to 1.25% the previous day, maintaining the highest level since the outbreak of COVID-19 in March. With forecasts that international oil prices could exceed $60 in the first half of the year, and considering the Biden administration’s additional $1.9 trillion stimulus package, the fiscal deficit is expected to increase beyond the existing $2.3 trillion deficit.

Although it is generally said that "when bond yields rise, stocks should be sold," the securities industry expects the rise in bond yields to be limited. This means that the increase in yields will not be enough to shock the stock market. In the U.S., the January Consumer Price Index (CPI) rose 1.4% year-on-year, meeting expectations for a rebound in inflation, but the median CPI, which reflects the actual inflation trend, actually declined. Expectations that the Federal Reserve will maintain its aggressive monetary easing policy also help stabilize yields.

Ahn Jaekyun, a researcher at Korea Investment & Securities, explained, "In the domestic market, if simple purchases are made in March when the Bank of Korea’s holdings of government bonds (2 trillion won) mature, bond yields will stabilize. Since there are no signs of inflation rising as much as economic recovery expectations, the yield levels of both countries will gradually calm down."

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