Due to Inflation Concerns, 10-Year Government Bonds Surpass 2.2%... First Time Since November 2018

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] The yield on 10-year government bonds has risen for consecutive days, surpassing 2.2% for the first time in two years and six months.

On the 2nd, in the Seoul bond market, the 10-year bond yield closed at 2.202%, up 1.6 basis points (1bp = 0.01 percentage points) from the previous day. This marks the fourth consecutive day of increase since the 28th of last month, and it is the first time since November 22, 2018 (2.206%) that the 10-year yield has exceeded 2.2%.

The 3-year government bond yield closed at 1.206%, down 0.7bp from the previous trading day. The 5-year and 2-year yields rose by 0.5bp and 1.3bp, closing at 1.731% and 0.997%, respectively.

The 20-year bond yield increased by 0.8bp to 2.292%. The 30-year and 50-year yields rose by 0.9bp and 0.8bp, respectively, both recording 2.289%.

Overnight, U.S. manufacturing indicators showed strength, pushing U.S. Treasury yields higher. Additionally, the consumer price index (CPI) released that day recorded its highest level in over nine years, leading to a rise in domestic government bond yields. However, in the afternoon, most maturities partially gave back some of their gains.

On the same day, Statistics Korea announced that the May consumer price index stood at 107.46 (2015=100), up 2.6% compared to the same month last year. This is the highest increase in nine years and one month since April 2012 (2.6%).

However, the government stated that the recent inflation surge is temporary and expects the inflation rate to stabilize. Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki explained the May CPI trend by saying, "The expanded rise in May consumer prices was largely due to the base effect."

The Bank of Korea’s Research Department also released reference materials titled “Evaluation of the May 2021 Consumer Price Inflation Rate,” stating, "The base effect from the significant drop in petroleum prices last May played a major role, which aligns with the level anticipated in the Bank of Korea’s June forecast released last week." The Bank of Korea further stated, "Going forward, the consumer price inflation rate is expected to slow down somewhat, fluctuating around 2% in the second half of the year and dropping to the mid-1% range next year," adding, "This is because the influence of supply-side factors such as oil prices and agricultural and livestock products, which have recently driven the inflation rise, is expected to diminish."

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