The U.S. 30-year Treasury yield jumped to 5.33%, weighing on Korea's stock market. However, NH Investment & Securities predicted that, considering policy authorities' responses, the yield will ultimately stabilize lower, unlike in the past.
Kim Byung-yeon, a researcher at NH Investment & Securities, said in a report on the 19th, "The recent U.S.-Japan coordination seen during the defense against yen weakness and the Federal Reserve's willingness to ease the supply-demand burden for long-term bonds indicate that policy authorities have heightened interest in stabilizing U.S. Treasury yields," adding, "Ultimately, as yields stabilize lower, led by the United States, the relief rally in the stock market will continue."
Kim assessed that the market's sensitivity to yields has structurally increased in recent years. He explained, "In recent years, as attention has focused on artificial intelligence (AI) growth, yields have relatively fallen out of the market's spotlight, but as corporations' funding has expanded from equity to borrowing, concerns have grown over whether investment expansion is sustainable and whether corporations can reliably cover dividends and interest."
In this situation, he noted concerns about the rapid policy rate hikes in 2023. Kim analyzed, "The recent upward pressure on the U.S. 10-year Government Bonds yield has stemmed more from a rise in real yields than from expected inflation," adding, "Behind that lies concern about the possibility of the U.S. Federal Reserve raising its policy rate."
Previously, during the Russia-Ukraine war in 2022, the United States raised rates step by step to respond to supply-driven inflation. On top of that, as plans to expand issuance of U.S. long-term bonds were announced, supply-demand pressures grew, and the U.S. 10-year Government Bonds yield surpassed 5%.
However, Kim viewed the current situation as different from then. He cited stronger market responses by the U.S. Treasury and lower actual inflation concerns than in the past. He said that even in the recent U.S.-Japan coordination, beyond simple exchange-rate defense, authorities minimized financial market instability by using tools such as the FIMA repo (FIMA Repo) to cushion market shocks from U.S. Government Bonds sales.
Kim said, "This conveyed an important message to investors in the global financial market," and evaluated that "risk appetite has strengthened."
He noted, however, that in the short term, Government Bonds issuance volume and the U.S.-Iran war could act as obstacles to yields stabilizing lower. But he assessed, "The supply-demand burden from Government Bonds issuance will shrink significantly starting next week," adding, "Considering Trump's strategic shift, the likelihood that military tensions in the Middle East will gradually ease is high."
With yield pressures easing, the stock market is likely to extend its relief rally. Kim predicted, "The recent cyclical rise centered on growth stocks reflects expectations of easing yield pressures," adding, "As long-term yields stabilize lower, led by the United States, the relief rally in the stock market will continue."