Meritz: "Many Factors Stabilize Bond Yields from Economic and Supply-Demand Perspectives"

Meritz Securities stated on the 6th that there are many factors for bond yields to remain relatively stable in terms of the economy and supply-demand in the domestic bond market.

[Image source=Yonhap News]

Yoon Yeo-sam, a researcher at Meritz Securities, said, "The core reasons for the sharp rise in domestic interest rates in February can be summarized as the rise in foreign interest rates and exchange rate instability."

Researcher Yoon emphasized, "Due to pressure for additional rate hikes in major countries, there is an increasing risk that Korea's base rate could rise to 3.75%. However, except for whether the inflation downward stabilization path can be achieved, there are relatively many factors for stability in terms of the economy and supply-demand."

Until the February Federal Open Market Committee (FOMC), it was expected that the 10-year US Treasury yield would not reach 4% again. Meanwhile, the federal funds rate expectations reflected in the forward rates (interest rates predicted to apply in the future from the current point) rose from 5.0% to 5.5% (upper bound).

The 10-year US Treasury yield also rose from the mid-3% range to 4%. Some have started to revise the 10-year US Treasury outlook upward from 4.5% to 4.75%.

Researcher Yoon evaluated, "Despite this situation, I maintain the view that the current 10-year US Treasury yield around 4% is a significant line."

He pointed out the need to examine domestic conditions where the burden of rising interest rates is less than that of external conditions. Researcher Yoon diagnosed, "Even if we put aside the burden of monetary policy and acknowledge the domestic base rate of 3.75%, the current market interest rates already reflect more than 50% of that expectation."

He added, "Institutions such as insurance and banks (investment & retirement) still have real money execution capacity, so maintaining a standby mode due to the unclear timing and scale of supplementary budgets is also a burden."

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