Amid the war between the United States and Iran, the three-year Government Bonds yield rose by the most in 2 years and 5 months. As oil prices climbed, concerns about inflation grew. Government Bonds yields and prices move in opposite directions, so a rise in yields means prices fell sharply. Yields on Government Bonds with other maturities also rose across the board.
According to the Korea Financial Investment Association on the 3rd, the three-year Treasury yield closed at 3.18%, up 13.9 basis points from the previous trading day (1 bp = 0.01 percentage point). The gain was the largest since Oct. 4, 2023 (22.4 bp), when the Asian Government Bonds market swung on fears of a U.S. federal government shutdown.
Government Bonds with other maturities also finished higher across the board. The one-year yield rose 7.9 bp to 2.723%, and the two-year closed up 15.5 bp at 2.973%. The five-year jumped 14.6 bp to 3.594%, the 10-year rose 14.8 bp to 3.594%, and the 20-year climbed 14.5 bp to 3.653%. The increases across all tenors were the largest since Oct. 4, 2023.
In the market, the sharp rise in international oil prices due to the military clash between the United States and Iran is seen as the main driver of higher yields. Typically, when geopolitical tensions escalate, risk aversion strengthens, pushing up prices of safe-haven Government Bonds and lowering yields. However, this crisis has effectively shut the Strait of Hormuz, through which about 20% of the world's crude shipments pass, sending international oil prices sharply higher and lifting inflation expectations.
On the 2nd (local time), Brent crude at one point topped $82 per barrel intraday, the highest in about a year since January last year. West Texas Intermediate (WTI) also rose to the $75 level, hitting a record high since June last year.
Hanwha Investment & Securities researcher Kim Seong-su said, "Bond yields rose on inflation concerns," adding, "However, because the recovery in domestic demand remains weak and can partially offset inflationary pressure, the war-related rise in yields may be temporary."