CP Surpasses 5% Amid Continuous Surge... Government Bonds Decline Amid US CPI Watch

[Asia Economy Reporter Lee Seon-ae] The corporate paper (CP) interest rate, which broke through 5%, continues to soar day after day. Meanwhile, government bond yields fell across the board as caution in the capital market expanded ahead of the U.S. October Consumer Price Index (CPI) announcement.

On the 10th, in the Seoul bond market, the interest rate on A1-grade CP with a 91-day maturity closed at an annual rate of 5.09%, up 7.0 basis points (1bp=0.01 percentage points) from the previous trading day. This is the highest level since January 14, 2009 (5.17%), breaking through 5.0% the day before and setting a new yearly high.

While CP rates continue to soar daily, CD rates have maintained 3.97% for eight consecutive trading days. The spread between the two rates has widened to 1.10 percentage points. On January 3, the CP-CD rate spread was only 0.25 percentage points. Since the Legoland default incident, it has widened by 85 basis points.

The 3-year maturity government bond yield closed at 4.033% annually, down 5.3 basis points from the previous trading day. The 10-year yield fell 10.7 basis points to 4.070% annually. The 5-year and 2-year yields closed at 4.097% and 4.112%, down 8.2 and 5.5 basis points, respectively. The 20-year yield dropped 11.4 basis points to 4.049%. The 30-year and 50-year yields fell 10.7 and 10.2 basis points, recording 4.011% and 3.976%, respectively.

The interest rate on unsecured 3-year AA- rated corporate bonds was 5.551% annually, and unsecured 3-year BBB- rated corporate bonds were at 11.402%, down 4.3 and 4.0 basis points from the previous day, respectively, but still remained at high levels.

The market sentiment is strongly focused on gauging the tightening intensity of the U.S. Federal Reserve (Fed) based on the U.S. October CPI. If the CPI exceeds market expectations, there is a forecast that the Fed’s tightening will not ease, which is expected to weigh on the market.

Kim Ji-man, a researcher at Samsung Securities, analyzed, "The market seems to expect that the U.S. October CPI will be lower than last month," adding, "Moreover, foreigners bought government bond futures and spot bonds until the late session, which pushed yields down."

Meanwhile, as CP rates continue to soar, financial authorities are considering additional measures. The Financial Services Commission and the Financial Supervisory Service will hold a funding market inspection meeting on the 11th. At this meeting, they plan to discuss expanding the purchase of asset-backed commercial paper (ABCP) through 450 billion won raised by major securities firms and policy financial institutions such as the Korea Development Bank.

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