Despite the Bank of Korea's interest rate reduction, market interest rates are instead rebounding, lifting the interest rates on bank dwellings loans (mortgages). This is due to concerns that the U.S. rate cuts will be smaller than expected and the increasing economic uncertainty, which has caused U.S. Treasury yields to rise. There are worries in the financial sector that the effects of the interest rate reduction are being offset.
According to the Korea Financial Investment Association on the 30th, the bank bond five-year note (AAA, non-guaranteed) rate used as the benchmark for fixed-rate mortgages was 3.149% as of the 26th. Following last month’s rate cut by the Bank of Korea on the 28th, the bank bond rate fell from 3.000% to 2.889% on the 6th of this month. However, it rebounded again, returning to the pre-rate cut level of around 3% after ten days, rising to 3.149% on the 26th.
Accordingly, the fixed-rate mortgages (5-year cycle, mixed type) of the five major banks, including Kookmin, Shinhan, Hana, Woori, and NongHyup, are now between 3.49% and 5.89%, which is an increase of 0.15 percentage points on both the upper and lower ends compared to the 10th. The bank fixed-rate mortgage interest rates are determined by adding an additional charge to the bank bond rate.
Despite the Bank of Korea lowering the interest rate for two consecutive months, loan interest rates are heading in the opposite direction. The Bank of Korea cut the base rate by 0.25 percentage points in October and implemented a surprise reduction on the 28th of last month. The base rate, which had been frozen at 3.5%, has now fallen to 3.0% after two consecutive cuts.
Typically, when the base rate is lowered, market interest rates also fall, leading to a decrease in loan rates. However, the rising yields on U.S. government bonds are offsetting the effects of the interest rate cut. On the 26th (local time), the yield on 10-year U.S. government bonds was recorded at 4.587%. The yield on U.S. government bonds reached a high of 4.641% in early trading, the highest since May 2. This is interpreted as a consequence of the Federal Reserve suggesting a moderation in the pace of interest cuts next year and the heightened economic uncertainty. Local bond experts also predict that U.S. government bond yields could reach around 5.0%.
With the rise in bank bond rates, it seems unlikely to expect a reduction in loan rates following the base rate cut for the time being. Recently, banks have collectively lowered their deposit and savings rates due to the impact of the base rate cut. However, they are hesitant to reduce loan rates, citing the rise in bank bond rates and the tightening management of household loans.
A representative from a commercial bank noted, "Even if the bank bond rates rise, we can lower the additional charge to adjust loan rates," adding that "there may be a rate cut that the public can feel, depending on the household loan situation next year."