[Good Morning Stock Market] Stock Market Reacts Volatilely to US Treasury Bond Yields

Rising Government Bond Yields Lead to Nasdaq Decline
KOSPI Faces Profit-Taking Pressure and Recession Concerns
"March FOMC Dot Plot in Focus... Determines Market Direction"

As U.S. Treasury yields rose, the Nasdaq index closed lower on the 6th (local time). The market has been fluctuating daily depending on the level of Treasury yields. Amid this volatility, the domestic stock market on the 7th is expected to show a downward trend, reflecting Federal Reserve (Fed) Chair Jerome Powell's Senate hearing on monetary policy and the sluggish U.S. stock market situation.

Sangyoung Seo, Researcher at Mirae Asset Securities: “KOSPI Expected to Start Lower... Concerns Over Economic Slowdown Also a Burden”

[Image source=Yonhap News]

The shift to rising Treasury yields, the narrowing of the U.S. dollar's weakness, and Fed Chair Powell's hearing event are factors that dampen investor sentiment. In the U.S. stock market, the Russell 2000 index, representing small and mid-cap stocks, fell by about 1.5%, and the Nasdaq index declined by 0.11%. The widening decline was due to increased selling pressure amid concerns over rising costs associated with the yield increase.

Another burden is that South Korea's leading economic indicators are showing a sharper slowdown compared to other countries. This could further stimulate investors' desire to realize profits. The OECD (Organisation for Economic Co-operation and Development) leading economic index continued its slowdown, falling below the baseline of 100 from 98.75 last month to 98.53. However, the rate of decline narrowed to 0.04, indicating a continuous reduction in the slowdown. In particular, the U.S. index contracted by only 0.02 from 98.47 to 98.45 compared to the previous month, a significant narrowing compared to the roughly 0.3 decline recorded last year. Germany, Italy, and the United Kingdom continued to show improvements for three consecutive months. In contrast, South Korea's index fell further from 98.27 to 98.11, increasing the slowdown by 0.16.

Yonggu Cho, Researcher at Shin Young Securities: “March FOMC Dot Plot Confirmation, Further Market Weakness Expected if Treasury Yields Rise”

With inflation concerns resurfacing, the U.S. 2-year Treasury yield has reached 5%, and the 10-year yield is around 4%. If the March Federal Open Market Committee (FOMC) confirms a hawkish dot plot with an upward revision of 50 basis points this year, the market may have to absorb additional downside pressure to some extent.

If a 50 basis point hike occurs in March or the terminal rate approaches 5.75% without an expanded rate cut in the 2024 dot plot, the 2-year yield may reach around 5.25%, and the 10-year yield could rise to about 4.2%, representing the upper bound.

The market expects the terminal rate to be formed between 5.5% and 5.75%. This is because service inflation and core inflation remain at high levels, and the Fed's inflation target, the PCE inflation rate, is stagnating around 5.4%.

However, early-year data may be distorted by weather, seasonality, and index adjustments, so it is premature to conclude whether the trend has fully deviated. Even Fed officials are not strongly advocating for a 50 basis point hike in March. The economic indicators to be released in February and March will be crucial.

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