South Korea’s 10Y Yield Hits 5-Week Low

South Korea’s 10-year government bond yield fell to around 3.65% in early April, hitting its lowest in five weeks, after the US, Iran, and Israel agreed to a two-week ceasefire to allow negotiations toward ending the war. President Donald Trump delayed planned strikes on Iranian civilian infrastructure for two weeks, calling it a “double-sided ceasefire,” with Iran reopening the Strait of Hormuz and Israel pausing hostilities. The move eased market tensions, sending oil prices lower and reducing some inflation concerns. Meanwhile, the Bank of Korea is expected to keep its key rate at 2.50% later this week, with analysts anticipating a cautious policy stance as it assesses the war’s impact on inflation and growth. South Korea, the world’s fourth-largest oil importer, sources about 70% of its supply from the Gulf.

South Korea’s 10-year government bond yield rose to 3.87%, its highest level since November 2023, as inflation risks from surging oil prices mounted in a country heavily reliant on energy imports. The spike followed Iran’s warning that it would target the energy systems of its Gulf neighbors if President Trump acted on his 48-hour threat to hit Iran’s electricity grid, dimming hopes for a quick end to the fourth-week-long war. The threat added volatility to oil markets, intensifying inflation concerns and increasing the likelihood of preemptive rate hikes. Meanwhile, South Korean economist Shin Hyun-song, known for forecasting past crises, was named over the weekend to head the country’s central bank. Economists expect Shin to adopt a more hawkish stance at the Bank of Korea, favoring macroprudential measures and exercising caution with interest rate cuts amid ongoing financial risks.

South Korea’s 10-year government bond yield rose to 3.72%, hitting its highest level in a month, amid concerns over renewed inflation pressures due to escalating tensions in the Middle East. The Bank of Korea noted on Friday that the resulting spike in oil prices may add to cost pressures in March, following data showing that February inflation came in slightly below expectations. Traders have since raised expectations for potential rate hikes but only see gradual policy tightening ahead. Some analysts, however, believe the central bank is unlikely to hike rates in response to higher-than-anticipated oil prices. Investors now look ahead to the release of fourth-quarter GDP data this week for further clues about the state the economy and the likely path of interest rates. Meanwhile, upward pressure on yields may be partially capped by expected foreign inflows associated with South Korea’s upcoming inclusion in an FTSE Russell index in April.