Home Business Why did the bond yields fall despite a current rate hike within the year?

Why did the bond yields fall despite a current rate hike within the year?

by news dir
Bank of Korea Governor Lee Ju-yeol presides over the meeting at the Financial Monetary Commission plenary meeting held at the Bank of Korea in Jung-gu, Seoul on the morning of the 27th. (Source: Bank of Korea)

[이데일리 이윤화 기자] Despite the fact that the Bank of Korea governor Ju-yeol Lee raised the base rate within the year, the bond market moved in the opposite direction. As a result of the financial and monetary committee meeting on the morning of the 27th, shortly after it was known that the base rate was frozen at 0.5% per annum and the economic growth rate for this year was forecast to be 4.0%, which is higher than the market forecast (3.7~3.8%), the Treasury Bond interest rate was 0.01~0.02% points ( 1bp=0.01% point), but it rose all at once, but after Governor Lee Joo-yeol’s press conference, the rise was reversed and interest rates declined. The strong’hawkish (preferring monetary tightening)’ message didn’t work for the bond market at all.

According to the Financial Investment Association on the 27th, the interest rate of KTBs fell, showing strength in both ultra-short and mid- to long-term bonds. The first, second, and three-year Treasury bonds, which are very short-term, closed down by 0.006 percentage points, 0.025 percentage points, and 0.037 percentage points from the previous day. The 5-year and 10-year bonds also fell by 0.034 percentage points and 0.017 percentage points, respectively. Long-term 20-year bonds ended with consolidation rights, and only 30-year and 50-year bonds rose by 0.004 percentage points and 0.002 percentage points, respectively.

In the bond market, although Governor Lee showed a hawkish perspective, he did not see the possibility that the FSC would raise interest rates right away. Rather, it is an analysis that the governor’s remarks to carry out the simple purchase of KTBs as planned during the first half of the year had a greater impact.

In the report on the bond industry immediately after the KFTC, most of the opinions maintained the existing outlook that interest rates would increase in the middle of next year, although the possibility of a minority opinion coming out within this year has increased. Even if the rate hike was advanced, the outlook for the first half or mid of next year was dominant.

Some analyzes say that the short- and long-term decline in bond yields caused the bond market to shrink excessively due to misinformation. On the 26th, the day before the KFTC, among bond market officials, Jirashi (private information magazine) circulated that’there may be a minority opinion at this time of the KFTC. It is a claim.

A bond market official said, “The governor’s remarks themselves have changed very hawkishly”. “But today, the bond market showed a strong market right after the press conference. It seems that it is because of relief from the remarks that the purchase of KTBs will proceed as planned after the decision to freeze.”

Governor Lee said on the day, “We made a plan to purchase government bonds worth 5 to 7 trillion won in the first half of this year, but we have purchased 3 trillion won so far, and we will purchase the remaining promised amount by the end of June.”


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