South Korea 10-Year Yield Hits 6-Week Low

South Korea’s 10-year government bond yield fell to around 4.25% in mid-October, its lowest in six weeks, as bonds rebounded following government measures to curb volatility. Authorities warned of intervention and cut planned government bond sales for October by 5 trillion won ($3.74 billion) to contain rising yields. Nevertheless, upward pressure on yields persists amid inflation concerns fueled by elevated oil prices and a broader global bond selloff, while stronger-than-expected economic growth driven by the semiconductor boom adds to price pressures. Won swaps are pricing in about a 70% chance of cumulative 50 bps in Bank of Korea rate hikes over the next six months, following back-to-back increases that lifted the policy rate to 3%. Markets are focused on the October 22 policy meeting, where the central bank may hold rates before potentially resuming tightening in November.

South Korea’s 10-year government bond yield rose to around 4.54% in late September, nearing its highest level since October 2022 and mirroring a broader global bond selloff after local trading resumed following the holidays. The move was driven by mounting inflation concerns as oil prices climbed amid persistent Middle East tensions. Higher US yields also added pressure on Korean bonds, as Korea-US long-term yields tend to move together, while expectations of further US rate hikes increased the prospect of additional Bank of Korea tightening. Policymakers have now raised the policy rate by 50 bps in two consecutive 25-bps moves to 3.00%, as stronger-than-expected economic growth, driven by a semiconductor boom, added to price pressures. The central bank cited inflation and financial stability risks, while saying further hikes would depend on economic conditions.

South Korea’s 10-year government bond yield rose to around 4.30% in early August, moving back toward its highest level in three years after the central bank signaled that further rate hikes are likely. Bank of Korea Senior Deputy Governor Ryoo Sang-dai said strong economic growth is fueling persistent underlying inflation. He added that the won’s recent recovery and stock moves give policymakers some flexibility, but said the key factors for policy would be core inflation, the durability of economic growth and financial stability. The BOK raised its policy rate by 25 bps to 2.75% in July, its first hike in three and a half years, amid stronger-than-expected growth and persistent price pressures. While headline inflation eased to 2.8% in July, core inflation edged up to 2.6%, remaining above the BOK’s 2% target. Ryoo said an additional hike is likely unless an extraordinary shock occurs, with policymakers expected to assess growth and inflation forecasts ahead of the August 27 meeting.