US Stock Market Spring Breeze... Won-Dollar Exchange Rate Also Declines

US Treasury Auction Sees Strong Bid-to-Cover Ratio... KOSPI Surpasses 3000 Again

On the morning of the 11th, dealers are working in the Hana Bank dealing room in Euljiro, Seoul, where the KOSPI is showing an upward trend in the early trading session amid favorable winds from the United States. Photo by Mun Ho-nam munonam@asiae.co.kr

[Asia Economy Reporter Park Byung-hee] The U.S. Treasury yields, which had been the epicenter of recent financial market instability, are showing signs of stabilization. On the 10th (local time), the yield on the 10-year U.S. Treasury note closed at 1.51%, down 0.02 percentage points from the previous trading day. Considering it had surged to 1.61% during trading on the 8th, it fell by 0.1 percentage points over two days.

As U.S. Treasury yields stabilized, the Dow Jones hit an all-time high, and the Korean stock market also started on an upward trend. The won-dollar exchange rate, which had risen to the 1140 won level, is also declining.

However, there are analyses that variables remain, as crude oil prices are likely to rise further, and the $1.9 trillion economic stimulus package passed by the U.S. Congress could fuel inflation.

◆ Stock Market Tailwind... Won-Dollar Exchange Rate Declines = The U.S. Treasury yields, which had surged recently due to concerns over U.S.-origin inflation, fell for the second consecutive day as the February Consumer Price Index (CPI) increase was not as large as expected, and the 10-year Treasury auction showed a favorable bid-to-cover ratio.

The U.S. Department of Labor announced that the February CPI rose 0.4% month-over-month and 1.7% year-over-year. Although the increase was larger than January's 0.3% and 1.4%, the core CPI, which the Federal Reserve (Fed) closely monitors, actually slowed. The core CPI rose 0.1% month-over-month and 1.3% year-over-year. The year-over-year increase was lower than January's 1.4% and also below Wall Street's forecast of 1.4%.

Relieved that inflation risks were not as high as expected, the U.S. Treasury's 10-year note auction held in the afternoon was completed smoothly. The auction for $38 billion of 10-year notes recorded a bid-to-cover ratio of 2.38 to 1, which was not significantly different from the one-year average of 2.42 to 1.

The Dow Jones Industrial Average closed at 32,297.02, up 463.28 points (1.46%) from the previous session. This marked the 11th all-time high this year. It was the first time the closing price surpassed the 32,000 mark.

In the Korean market, as of 10:25 a.m. on the 11th, the KOSPI stood at 3,002.91, up 44.79 points (1.51%) from the previous trading day. The index started at 2,964.30, up 6.18 points (0.21%) from the previous close, and has been gaining momentum.

The domestic won-dollar exchange rate also showed stability by declining. At 9:04 a.m., shortly after the Seoul foreign exchange market opened, the won-dollar rate was 1,137.1 won per dollar, down 5.6 won from the previous day's closing price.

◆ U.S. Congress Approves $1.9 Trillion Economic Stimulus Package = Although immediate inflation concerns have been eased, analyses suggest that the $1.9 trillion stimulus package and crude oil prices remain variables.

The stimulus bill, which includes a plan to provide $1,400 to each household, passed the House on the same day after clearing the Senate. President Joe Biden is expected to sign the bill on the 12th. Once President Biden signs, the U.S. Internal Revenue Service (IRS) plans to deposit $1,400 into each individual's bank account soon after. While the $1,400 payments are expected to boost consumption and promote U.S. economic growth, they are also anticipated to stimulate inflation.

Crude oil prices, expected to rise to $80 per barrel within months, are another variable. Due to the impact of rising oil prices, the February Producer Price Index (PPI) year-over-year increase, to be released on the 12th, is expected to be 2.7%. The January increase was 1.7%.

◆ ‘Interest Rate Anxiety’ Returns in Q2 = Market experts predict that inflation concerns will intensify again this summer. Antoine Bouvier, Senior Investment Strategist at ING, said, "The yield on the 10-year U.S. Treasury note will rise to 2% by the end of this year and could reach 2% again in the second quarter." He added, "By the end of Q2, the inflation rate is expected to be around 3.5%."

Jeffrey Gundlach, CEO of DoubleLine Capital, known as the "Bond King," also predicted, "The U.S. CPI inflation rate will exceed 3% this summer," and "At some point, it could surpass 4%."

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