South Korea 10-Year Yield Lowest Since May

South Korea’s 10-year government bond yield fell to around 4% in late October, its lowest level since May, as expectations of reduced government bond issuance supported bond prices. The government may tap its planned Future Response Fund, financed by a semiconductor-driven tax windfall, to further reduce borrowing if yields rise sharply or market conditions worsen. Seoul plans to reduce net bond issuance by 12.5 trillion won in 2027, while the fund is expected to receive 162.3 trillion won next year, with roughly two-thirds remaining in reserves after planned allocations. The potential for further issuance cuts could provide additional support for government bonds and limit upward pressure on yields. However, persistent inflation and the Bank of Korea’s recent rate hikes remain upside risks to yields. BoK Governor Shin Hyun Song also recently pledged to maintain restrictive policy until inflation converges toward its 2% target.

South Korea’s 10-year government bond yield fell to around 4.14% in late October, its lowest since June, as foreign buying of government bond futures lifted bond prices. Concerns over mounting debt at AI infrastructure firms further boosted safe-haven demand for government bonds, while falling US Treasury yields put additional downward pressure on Korean yields. On the monetary policy front, the Bank of Korea held its policy rate at 3% on October 22, pausing after back-to-back 25 bps hikes in July and August aimed at containing inflation and addressing financial stability risks, including rising housing prices and household debt. Governor Shin Hyun Song recently signaled a gradual, data-dependent approach to further tightening but pledged to maintain restrictive policy until inflation converges toward its 2% target. Against this backdrop, persistent inflationary pressures and strong semiconductor-led growth have kept market expectations of another rate hike in November alive.

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.