[Click eStock] "Increased Uncertainty in Bond Market Supply and Demand Due to Weakened Policy Consistency"

Yuanta Securities analyzed on the 9th that the weakening of policy consistency has increased uncertainty in bond market supply and demand.

At the end of last year, the bond market did not continue the long-term interest rate decline as expected by the market, volatility expanded, and long-term interest rates attempted to rebound. The fluctuations in long-term government bond yields varied by country, reflecting differences in economic and funding conditions.

There is a notable point in the recent fluctuations of global bond market interest rates. Although the Fed rate cuts have been implemented since the second half of last year, U.S. long-term Treasury yields have been downward rigid and are attempting to rise. Since September, the policy rate has been cut by 100bps, but conversely, long-term government bond yields have risen by about 50bps. While policy rates and long-term yields fluctuate independently, the impact of political risks and uncertainties by country on interest rates has not been reflected as significantly as concerns suggested.

There has been a liquidity-driven market centered on short-term funds, and the abundant global dollar liquidity appears to be reflected in the bond market and influencing interest rate fluctuations. Additionally, short-term funding conditions affect the volatility of interest rates and other financial variables.

In response to economic uncertainty, the likelihood of maintaining an accommodative monetary policy stance has increased. However, depending on regional capital flows, it is uncertain whether monetary and financial policies will have the intended effects on the bond market. In particular, as volatility in the Korean won exchange rate increases due to offshore capital flows, there are doubts about whether the policy stance can maintain consistency, and accordingly, it is forecasted that long-term interest rates have a higher possibility of increased volatility.

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