Bank Bond Yields Hit Highest in 10 Years... Household Loan Rates Break the Ceiling

Bank Bond Yields, the Benchmark for Commercial Bank Loan Rates, Soar Amid Financial Market Shock
1-Year and 5-Year Bonds Reach Highest Levels Since 2012

[Image source=Yonhap News]

[Asia Economy Reporter Sim Nayoung] The interest rates on bank bonds (financial bonds), which serve as the benchmark for loan interest rates at commercial banks, have reached their highest point in 10 years. The inflation shock that began in the United States has struck global financial markets, impacting South Korea's bond market as well.

According to the Bond Information Center of the Korea Financial Investment Association on the 14th, the interest rates on Korean government bonds as well as bank bonds have surged, with the 5-year bank bond rate?used as the benchmark for mixed mortgage loan products (5 years fixed rate followed by variable rate)?rising to 3.959% (average market rate). This marks the highest level in 10 years and 2 months since April 10, 2012 (3.96%).

The 1-year bank bond rate, which serves as the benchmark for bank unsecured loans, also recorded 2.969% (average market rate) as of the 13th. This is the highest in 9 years and 9 months since September 19, 2012, when it was 2.97%.

As bank bond rates surge as if breaking through the ceiling, commercial bank interest rates are also expected to rise at a similar pace. Bank interest rates for unsecured loans typically follow the 1-year financial bond rate, while mixed mortgage loans are linked to the 5-year financial bond rate trends.

Banks raise funds for lending through issuing bank bonds and accepting deposits. For example, mixed-rate loans are provided to consumers using funds raised by issuing 5-year bank bonds, whose rates change daily. When bank bond rates rise, consumer interest rates are directly affected.

On the 15th, the COFIX (Cost of Funds Index), which influences variable mortgage loan rates, will be announced. The COFIX based on new loan amounts in April, announced in May, rose to 1.84%, continuing its upward trend. The banking sector is confident that rates will increase again this month.

A representative from a commercial bank said, "Fixed-rate loan interest rates at commercial banks could rise to 6-7% or higher," adding, "Interest rates on household loans, including unsecured loans and mortgages, are expected to increase further going forward."

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