US Treasury 'Stirs' While Bank Bonds 'Shake'... Growing Borrower Sighs

With multiple domestic and international adverse factors such as the sharp rise in U.S. Treasury yields and the abolition of the bank bond issuance limit, signs are emerging that loan interest rates in the financial sector will trend upward. Due to the possibility of prolonged high interest rates, the upper limit of mortgage loan rates in the banking sector has already broken through the 7% barrier, and borrowers' interest burdens are expected to increase.

According to the Korea Financial Investment Association on the 6th, the yield on AAA-rated 5-year bank bonds was recorded at 4.755% as of the previous day. Although it fell about 4 basis points (1bp=0.01%) compared to the day before, it rose 26bp compared to the end of last month (4.491%).

This 5-year bank bond yield is not only the highest level this year but also the highest since December 1 last year (4.789%), when the repercussions of the Legoland incident continued. Since the 5-year bank bond yield is typically used as a benchmark rate for mixed (fixed) mortgage loans in the banking sector, it also affects loan interest rates.

The reason for the soaring bank bond yields lies in the U.S. 10-year Treasury yield. Concerns have spread that the U.S. Federal Reserve's (Fed) high interest rate stance will be prolonged, and on the 3rd (local time), the U.S. 10-year Treasury yield surged to 4.802% at the closing price, marking the highest level in 16 years. As a result, the 10-year Treasury yield also rose to 4.335%, up 32bp compared to the end of the previous month.

The financial authorities' abolition of the bank bond issuance limit regulation, which was implemented from the fourth quarter to prevent excessive deposit competition, is also fueling the possibility of rising loan interest rates. Bank bond issuance has turned to net issuance since August, and the amount maturing in the fourth quarter alone reaches 46 trillion won. Generally, an increase in bank bond issuance leads to higher loan interest rates, so domestic adverse factors are following the external adverse factor of the sharp rise in U.S. Treasury yields.

The industry expects that loan interest rates will likely continue to rise for the time being. As of the 5th, the variable mortgage loan rates of the four major banks (KB Kookmin, Shinhan, Hana, Woori) range from 4.24% to 7.17%, and mixed rates range from 4.00% to 6.74%, with the upper limit already surpassing 7%.

A financial sector official said, "Although the domestic base rate is on a freeze stance, if the U.S. base rate and Treasury yields, which greatly influence market interest rates, continue their high-level march, loan interest rates will inevitably be affected," adding, "Loan interest rates are expected to show an upward trend for the time being."

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