KB Securities "US 10-Year Treasury Yield Upper Limit 2.7%... Further Increase Possible"

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] KB Securities forecasted the first upper bound of the US 10-year Treasury bond yield to remain at 2.7%, as before. However, they analyzed that it could rise further once the US begins quantitative tightening (QT) starting in May.

Im Jae-kyun, a researcher at KB Securities, stated, "Following the confirmation of US consumer prices in March, expectations of a 'peak out' in inflation have formed, and it is judged that concerns over the Fed's tightening are passing a turning point."

Researcher Im predicted the upper bound of the US 10-year Treasury yield at 2.7% but pointed out the possibility of further increases. He explained, "Since the sale of MBS (Mortgage-Backed Securities) could drive additional rate hikes, if the technically significant level of 2.8% is exceeded during the year, concerns that the US 10-year yield will surpass 3% will also increase."

Researcher Im noted that while concerns about monetary policy are passing a turning point, the tightening stance remains unchanged. He said, "In March, US consumer prices rose 1.2% month-on-month (8.5% year-on-year, forecast 8.4%), but core consumer prices rose 0.3% month-on-month (6.5% year-on-year, forecast 6.5%). The market is taking the possibility of a 50bp hike at the May FOMC as a given."

[Image source=Yonhap News]

Even after the March inflation announcement, Fed Governor Waller and New York Fed President Williams continued to support a 50bp hike in May.

Researcher Im analyzed, "Moreover, the burden of housing costs, which account for 33% of consumer prices, remains high. Although March housing costs rose 0.5% month-on-month, slowing the increase, the high downward rigidity means it is not likely to fall quickly."

He added, "Ultimately, the Fed may quickly sell MBS to stabilize housing costs, which could induce a rise in MBS yields."

Researcher Im analyzed that regardless of whether the Bank of Korea raises rates at the May Monetary Policy Committee meeting, if global central banks continue tightening, hawkish remarks come from the successor candidate for the Bank of Korea governor, and concerns over capital outflows due to the inversion of benchmark interest rates persist, the market could expand expectations for consecutive rate hikes.

He also predicted, "The peak for the 3-year government bond yield is expected to be around 3%, and the year-end rate level will be lower than the current level."

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