BoK: "Continued Synchronization of Long-Term US-Korea Treasury Bonds... Some Pressure on Loan Interest Rate Increases"

Recently, as the yields on Korean government bonds have rapidly risen in synchronization with U.S. Treasury yields, there is an analysis that some loan interest rates and bank bond yields linked to long-term rates may face upward pressure in the future.

Choi Kang-wook, Deputy Director, Koo Byung-soo, Manager, and Ji Sung-min, Researcher of the Financial Market Department at the Bank of Korea, explained this in the BOK Issue Note titled "Current Status and Evaluation of Korea-U.S. Interest Rate Synchronization," released on the 11th.

According to the report, despite no significant changes in domestic monetary policy conditions or expectations recently, Korean government bond yields have rapidly increased in synchronization with U.S. Treasury yields. Accordingly, concerns are growing that borrowing costs for households and corporations may rise.

The synchronization of domestic government bond yields with U.S. Treasury yields is a common phenomenon observed in other major countries as well. Korean and U.S. government bond yields have historically shown very similar trends, and last year, the synchronization of Korea-U.S. interest rates strengthened across all maturities.

However, this year, while synchronization among short-term bonds has significantly weakened, synchronization among long-term bonds remains at a high level, showing differentiation by maturity.

In fact, although the Korea-U.S. policy rate gap widened by 100 basis points (1bp = 0.01 percentage points) this year, the gap between long-term bonds did not expand significantly. Accordingly, unlike the inverted U.S. Treasury yield curve, the domestic yield curve is gently upward sloping.

The report explains the cause of this as "presumably due to a somewhat weakened real economy linkage path and monetary policy expectation path."

Unlike last year, when inflationary pressures increased due to global supply shocks, this year, market expectations regarding inflation, growth conditions, and future outlooks in Korea and the U.S. have diverged, weakening the real economy linkage path.

Additionally, the financial market expects that Korea-U.S. policy rates will show somewhat divergent movements in the medium to short term, reflecting these differences in inflation and growth expectations.

Since household and corporate loan interest rates are largely linked to short-term rates under one year with variable rates, and the issuance maturities of corporate bonds and bank bonds are mostly medium- to short-term bonds under three years, the recent rise in U.S. Treasury yields is not expected to have a significant impact.

However, since domestic long-term interest rates still show high synchronization with U.S. Treasury yields, some loan interest rates, bank bond yields, and corporate bond yields linked to these may be partially affected by the rise in U.S. Treasury yields.

The report emphasized, "As volatility in U.S. Treasury yields may increase due to changes in expectations about U.S. monetary policy in the future, and the impact on domestic interest rates may also rise, it is necessary to closely monitor the movements of U.S. Treasury yields and their consequent effects."

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