Due to Inflation Concerns, Market Interest Rates Soar... 10-Year Government Bond at 2.199%

10-Year Korean Treasury Bond Hits New Intraday High Again

[Image source=Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] Last month, the consumer price inflation rate rose by 2.6%, marking the largest increase in over nine years, causing market interest rates to also rise. Market interest rates are reacting first with an upward trend due to concerns over inflation and the early normalization of monetary policy.

According to Investing.com at 10:40 AM, the yield on the 10-year Korean government bond was trading at 2.199%, up 1.3 basis points (1bp=0.01 percentage points) from the previous day. This marks the third consecutive day of increase. The 10-year government bond yield hit a new high of 2.186% the previous afternoon, surpassing the highest point since November 26, 2018 (2.167%), and the intraday trading yield was even higher than this.

The 5-year government bond yield is at 1.733%, and the 3-year bond yield is at 1.214%, showing a slight increase from the previous day but not yet surpassing previous highs.

The recent rise in government bond yields began as expectations grew that the Bank of Korea’s monetary policy normalization might proceed faster than anticipated. The Bank of Korea raised its annual growth forecast to 4.0% this year, and Governor Lee Ju-yeol made hawkish remarks. At a press conference following the Monetary Policy Committee meeting on the 27th of last month, Governor Lee said, "We should not rush to raise the base interest rate, but we should not miss the timing either," adding, "It is an important task to orderly adjust monetary policy according to changes in the real economy and financial stability."

The possibility of nationwide disaster relief payments is also fueling the rise in government bond yields. To prepare a second supplementary budget, deficit bonds will inevitably have to be issued, and as the issuance volume increases, government bond prices will fall and yields will rise.

This situation increases the burden on households, companies, and the government that have increased debt in response to the COVID-19 crisis. The effect of maintaining the historically low base interest rate of 0.50% annually will disappear. Therefore, the Bank of Korea has announced plans to purchase government bonds worth 5 to 7 trillion won in the first half of this year to stabilize government bond yields. Having already purchased bonds worth 3 trillion won, it plans to buy an additional 2 to 4 trillion won worth in the remaining month.

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