'Expected Inflation at 2%' Boosts Rate Cut Expectations... Government Bonds Close Lower Across the Board

Foreigners Switch to Net Buying of Government Bond Futures in One Day
3-Year Treasury Bonds Close at 3.046%

As the expected inflation rate fell to the 2% range for the first time in 2 years and 4 months, raising expectations for a base interest rate cut, government bond yields collectively declined.

On the 24th in the Seoul bond market, the 3-year government bond yield closed at 3.046% per annum, down 3.8 basis points (1bp = 0.01 percentage points) from the previous trading day.

The 10-year yield fell 4.0bp to 3.131% per annum. The 5-year and 2-year yields dropped 3.7bp and 2.1bp respectively, closing at 3.073% and 3.118% per annum. The 20-year yield decreased by 2.7bp to 3.089% per annum. The 30-year and 50-year yields fell 2.7bp and 2.4bp respectively, recording 3.004% and 2.953% per annum.

Government bond yields declined throughout the trading day. This is interpreted as a result of expanded expectations for price stability and increased anticipation of an early base interest rate cut.

According to the 'Consumer Sentiment Survey Results' released by the Bank of Korea on the same day, the expected inflation rate for July was 2.9%, down 0.1 percentage points from June. The expected inflation rate reflects consumers' forecast of the inflation rate over the next year. This is the first time this indicator has recorded a figure in the 2% range since March 2022 (2.9%).

Foreign investors' net purchases of government bond futures also appear to have influenced the decline in government bond yields. On the day, foreign investors net bought 5,324 contracts of 3-year government bond futures and 3,801 contracts of 10-year government bond futures. Foreign investors, who had net sold both 3-year and 10-year government bond futures on the previous day (the 23rd), reversed to net buying in just one day.

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