The local currency, in contrast, erased early losses to close slightly higher as a clearer path toward interest rate hikes cushioned the market.
The three-year government bond yield rose 5.9 basis points to 3.790 percent, its highest level since November 2023, while the 10-year yield jumped 10.6 basis points to 4.174 percent, returning to levels last seen in late May.
Earlier in the morning, BOK Governor Shin Hyun-song emphasized during a policy dialogue at the BOK International Conference that South Korea's economic growth momentum remains robust, expanding the central bank's room to respond to inflation. The comments triggered a massive sell-off in the fixed-income market as investors interpreted the remarks as a clear signal for upcoming rate hikes.
"The growth is very strong here in Korea," Shin said. "First-quarter growth is super strong, especially when measured in terms of gross domestic income rather than gross domestic product."
"It poses fewer impediments to adjusting monetary policy in light of inflation," Shin said, adding that it gives the central bank a lot more leeway to conduct monetary policy.
The upward trajectory of bond yields was already anticipated, as optimism for peace dimmed after President Trump announced on Sunday that he would not sign the draft peace memorandum with Iran.
South Korea, which relies on the Strait of Hormuz for nearly 70 percent of its total crude oil imports, suffered a heavier blow than other major economies; this geopolitical friction, compounded by the BOK governor's hawkish rhetoric, sent bond prices tumbling.
Conversely, the local currency showed resilient strength, defying expectations of a synchronized drop. The won opened down 0.8 won at 1,508.8 won per dollar and breached the 1,510 mark intraday, but steadily recovered after the conclusion of the conference's morning session to close up 3.6 won at 1,504.3 won per dollar.
Rate hike expectations following Shin's remarks were fully priced into the market, effectively offsetting the headwinds stemming from the uncertainties in the Strait of Hormuz.
"The central bank's tightening stance appears to be supporting the local currency," a foreign exchange market official said on the condition of anonymity.
Copyright ⓒ Aju Press All rights reserved.