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According to the Financial Investment Association on the 24th, on the 22nd, the interest rates on KTBs rose all at once, regardless of short-term and long-term bonds. In particular, the 3-year bond yield rose by 0.053 percentage points from the previous day to 1.889%, a new high for the year based on the closing price. The 10-year Treasury yield also rose 0.023 percentage points to 2.411%, close to the high of the year (2.447%). Short-term one-year and two-year bonds also recorded 1.170% and 1.639%, while 20- and 30-year bonds also rose to 2.388% and 2.311%.
This rise in KTB yields was affected by the surge in US Treasury yields and the selling of Treasury futures by foreign investors in the domestic bond market. On the 21st (local time), the 10-year U.S. Treasury yield rose to 1.702% during the day, the highest in five months since May 12 (1.700%).
The recent rise in US Treasury yields is due to the fact that the US Federal Reserve (Fed) announced an early tightening plan due to concerns about inflation (inflation). High-ranking officials within the Fed are thinking that tapering (reduction of asset purchases) will be implemented as early as November and rate hikes from the third or fourth quarter of next year.
In addition, the Bank of Korea raised the base rate for the first time in 33 months in August and is expected to raise interest rates once more at the Monetary Policy Committee next month, adding pressure to the interest rate on KTBs. If the BOK raises the base rate at the MPC meeting in November, it will rise from the current 0.75% to 1.0%. In the bond market, there is also a forecast that the base rate could rise from 1.5% to 1.75% by the end of next year.
Foreign selling in the futures market also contributed to the rise in KTB yields. Heo Jeong-in, a researcher at KTB Investment & Securities, said, “Recently, the spread between the 3-year government bond yield and the central bank’s base rate has risen to the highest level in 10 years, which seems to reflect the possibility that the base rate will reach 1.5% in the first quarter of 2022.” We believe that the interest rate has reached its all-time high because foreigners’ selling of government bond futures had an absolute influence on the background of the recent surge in interest rates.”
The problem is that the market interest rate linked to the KTB interest rate fluctuates, and loan interest rates can continue to climb. As the financial authorities tightened lending regulations, banks reduced their preferential rates and raised additional interest rates, as well as financial debentures (five-year maturities) and COfixes, which are indicators of loan interest rates, also rose. I’m putting it in front of my nose. As of the 20th of last month, the variable interest rate for main loans of the four major commercial banks (KB Kookmin, Shinhan, Hana, and Woori Bank) was 3.35 to 4.67% per annum, and the fixed mixed rate was 3.28 to 5.01% per annum. The COFIX (Funding Cost Index) interest rate, which is used as the base rate for variable mortgage loans, rose to 1.16% as of the 15th.
In the bond market, the possibility that KTB yields will rise further by the end of this year cannot be ruled out. Most of the current trend is considered overshooting, but the 3-year bond is expected to rise by 2.0% and more than 2.50% for the 10-year note. The interest rate on US Treasury bonds, which has a major impact on domestic Treasury yields, is expected to continue to rise until the end of the year, as well as problems such as soaring international oil prices and supply chain bottlenecks.
Woo Hye-young, a researcher at eBest Investment & Securities, said, “The 10-year Treasury bond yield shows a coupling (synchronization) with the US 10-year bond yield, and the 3-year Treasury yield continues to remain flat while reflecting the tightening stance such as the Bank of Korea’s additional hike, while the 3-year Treasury note is 1.72 in November. %~1.95%, 10-year bonds are expected to move at 2.28%~2.53% level,” he said.
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