Slowing Exports... Will Bond Yield Upper Limits Be Restricted in the Second Half?

Export Business Sentiment Index Declines for 2 Consecutive Months
"Upper Limit on Interest Rates in Second Half Due to Ongoing Concerns"

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] Bond yields are rising along with the increase in the base interest rate. However, concerns arising from the slowdown in export growth appear to be a factor limiting the upper bound of bond yields in the second half of the year.

According to Shinhan Investment Corp. on the 11th, bond yields have been rising recently along with signals of the Bank of Korea's base rate hikes. On the 10th, the 10-year government bond yield rose 0.4% from the previous day to 2.008%. This marks the 10-year government bond yield surpassing the 2% level again since July.

From a fundamental perspective, exports, which influence interest rate hikes, continue to boom. Korea's exports in August increased by 34.9% year-on-year, marking the 10th consecutive month of growth. Not only are exports increasing, but the scale is also substantial. The export amount up to August reached $411.9 billion (approximately 481.923 trillion KRW), a level similar to the figures recorded up to October last year. Unless adverse events like COVID-19 reoccur, exports exceeding $50 billion monthly are expected to continue.

(Provided by Shinhan Financial Investment)

However, despite the strong export performance in August, there are also signs of instability. The average daily export growth rate, adjusted for working days, was 28.8% year-on-year in August, marking a decline for three consecutive months. Both export value and volume indices have also slowed for two consecutive months.

Looking at detailed items, export unit prices are rising, but there are concerns about whether this can be sustained. The export volume indices for semiconductors and petroleum products are declining, but the export value indices are either rising or maintaining high levels. Researcher Cho Jong-hyun of Shinhan Investment explained, “Export volumes are stagnating, but export values are maintained due to unit price increases caused by bottlenecks,” adding, “There may be doubts about whether this trend of rising values can continue.”

The export momentum is also somewhat weakening. The July Export Business Survey Diffusion Index, which indicates export momentum, was 57, down 3 points from the previous month. Although it remains above 50, it has been declining for two consecutive months. Researcher Cho said, “The Export Business Survey Diffusion Index leads the actual export economy by about seven months, and typically, if the index moves in the opposite direction to the current situation for two consecutive quarters, it signals a turning point in trade conditions,” adding, “It is necessary to check whether the index moves contrary to the past for more than three months.”

This situation is expected to limit the rise in the 10-year government bond yield. Researcher Cho explained, “It is still insufficient to consider this a momentum slowdown at this point, but these concerns are acting as factors limiting the upper bound of yields in the remaining second half of the year,” adding, “This is the reason why the upper bound of the 10-year government bond yield remains firmly in the low 2% range, as it acts as a material that stimulates a bull flag pattern continuing after a sharp rise.”

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