3-Year Korean Treasury Bond Yield Surpasses 4%... Bond Market Reacts Sharply to FOMC Outcome

Breaking 4% After 11 Years and 7 Months
Inversion of Short- and Long-Term Interest Rates
Policy Rate Outlook Up... Long-Term Ceiling Should Also Be Kept Open

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] As the U.S. Federal Reserve (Fed) implemented a third consecutive 'giant step' (a 0.75%P increase in the benchmark interest rate), the 3-year Treasury bond yield surpassed 4% for the first time in 11 years and 7 months on the 22nd. The bond market is experiencing turmoil, with the 3-year and 10-year yields even inverting. Given the upward revision of the policy rate outlook, bond market volatility is expected to intensify.

On this day in the Seoul bond market, the 3-year Treasury bond yield opened at 3.950%, up 10.3 basis points (1bp = 0.01 percentage points). The 10-year yield opened at 3.933%, up 4.2 basis points. The 3-year yield surged to as high as 4.035% during the session. The 3-year Treasury bond yield exceeding 4% is the first time since February 8, 2011 (4.06%), marking 11 years and 7 months.

The key focus of this regular meeting was not the size of the rate hike but the dot plot. The dot plot represents the appropriate interest rates as perceived by the 18 members of the Federal Open Market Committee (FOMC). According to the dot plot, the benchmark rate is expected to rise to 4.4% by the end of this year and further increase to 4.6% next year. The previous forecast was 3.4% by the end of this year and 3.8% by the end of next year.

The dot plot coming in higher than market expectations is placing significant pressure on the bond market. Jo Yong-gu, a researcher at Shin Young Securities, said, "The final level of the policy rate could rise to an upper bound of 4.50?4.75%," adding, "As the upper limit of long-term yields is constrained, the spread between the 2-year and 10-year yields is expected to widen to an inversion of up to 75 basis points."

Han Ji-young, a researcher at Kiwoom Securities, analyzed, "Considering the policy rate hike trend next year, the 10-year U.S. Treasury yield needs to keep the upper bound open up to 4% within this year and respond accordingly," adding, "An upward adjustment of long-term yields is inevitable."

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