On the 27th in the Seoul bond market, the yield on 3-year Government Bonds topped 3% for the first time in 16 months. Government Bonds yields move inversely to prices, so a rise in yields means a fall in prices. This was influenced by the Bank of Korea (BOK) keeping the benchmark rate unchanged at 2.5% a year and signaling in its monetary policy stance that the possibility of a rate cut is low for the time being.

That day, the 3-year Government Bonds yield ended the transaction at 3.013%, up 11.8 bp (1 bp = 0.01 percentage point) from the previous day. It is the first time in 1 year and 4 months that the final quote for the 3-year Government Bonds yield has exceeded 3% since Jul. 31 last year (3.004%).

Rhee Chang-yong, governor of the Bank of Korea, explains the background to holding rates at a press briefing at the Bank of Korea in Jung-gu, Seoul, on the 27th./Courtesy of News1

The 3-year Government Bonds yield opened the transaction at 2.876%, down 1.9 bp from the previous day. However, at 9:50 a.m., immediately after the Monetary Policy Board of the Bank of Korea (BOK) kept the rate unchanged at 2.50% a year, it broke through 2.9%. It continued to rise after Governor Rhee Chang-yong began a press briefing at 11:10 a.m. Even after the briefing ended around 12 p.m., it climbed and reached 3.001% at 3:10 p.m.

Yields on Government Bonds with maturities of 2, 5, 10, 20, and 30 years also all closed higher that day. The 2-year Government Bonds yield finished the transaction at 2.842%, up 10.8 bp from the previous trading day, and the 5-year ended at 3.197%, up 11.3 bp. The 10-year (3.351%), 20-year (3.215%), and 30-year (3.237%) also rose by 10 bp, 7.7 bp, and 7.3 bp, respectively.

The rise in bond yields is seen as reflecting investors' judgment that the Bank of Korea is unlikely to cut the benchmark rate for the time being. After keeping rates unchanged that day, the Bank of Korea used the phrase "will leave open the possibility of a rate cut going forward" in its monetary policy stance. Compared with last month's monetary policy stance, which used the phrase "will maintain a rate-cutting stance going forward," analysts said the will to cut rates appears to have weakened.

Kang Seung-won, head of bond strategy at NH Investment & Securities, said, "Based on the wording of the decision statement, the market put more weight on the view that the rate-cut cycle has ended."

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