The three-year Korean government bond yield rose 11.3 basis points to close at 4.119 percent, while the benchmark 10-year yield climbed 14.7 basis points to 4.539 percent.
The won weakened 7.6 won to close at 1,365.1 per dollar.
The U.S. 10-year Treasury yield rose 20 basis points between Sept. 23 and 25, when Korean markets were largely closed for the holiday. The two-year yield gained 10 basis points over the same period.
Monday’s 14.7-basis-point rise in Korea’s 10-year yield equaled nearly three-quarters of the U.S. 10-year yield’s increase over those three sessions, showing how quickly the domestic market caught up after reopening.
“The U.S. 10-year yield breaking above 5.2 percent and the 30-year topping 5.5 percent during the holiday reflect the vulnerability of the global bond market,” said Yoon Yeo-sam, an analyst at Meritz Securities.
Yoon said the latest episode differs from the abrupt tightening shock of 2022. Markets are now facing another rise in yields after several years of already-high borrowing costs, adding to the strain of a prolonged higher-for-longer environment.
The BOK raised its policy rate by 25 basis points to 3.00 percent in August. It has said it will decide the timing and pace of any further increases by monitoring inflation, growth and financial stability.
The BOK’s next monetary policy meeting is scheduled for Oct. 22, five days before the Federal Reserve’s Oct. 27-28 meeting.
That sequence puts the persistence of U.S. long-term yields in focus for Korean markets: the BOK will make its next rate decision before the Fed announces its decision later that month.
Meritz expects the BOK to raise its policy rate to 3.50 percent through increases in November and February, while seeing scope for a move to 3.75 percent if external pressure intensifies.
Strong exports and renewed oil price pressure could also limit the scope for domestic yields to retreat by keeping concerns over import-price inflation alive, the brokerage said.
The BOK said Korea’s economic fundamentals remained sound but warned that U.S.-Iran negotiations, fiscal concerns in major economies and changes in expectations for the artificial intelligence industry could increase volatility in domestic financial and foreign exchange markets.
Before the October BOK meeting, investors will assess U.S. job openings, personal consumption expenditures inflation and employment data due this week for signs of whether expectations for further Fed tightening will strengthen or ease.
Monday’s move showed how quickly Korean bonds can catch up when global yields rise during a domestic market closure.
The next question is whether the U.S. sell-off proves temporary or persists into October, keeping Korean yields elevated as the BOK approaches its next policy decision.
AJP Takeaways
- Korea’s three-year and 10-year government bond yields rose 11.3 and 14.7 basis points, respectively, as markets reopened after the Chuseok holiday.
- Korea’s 10-year yield absorbed nearly three-quarters of the U.S. 10-year yield’s holiday-period increase in one trading session, according to an AJP calculation.
- Investors are watching whether elevated U.S. yields persist into the BOK’s Oct. 22 meeting, ahead of the Fed’s Oct. 27-28 decision.
Copyright ⓒ Aju Press All rights reserved.