As the likelihood has increased that the Bank of Korea will raise the benchmark rate twice this year, yields on short-term Treasury bonds jumped. Short-term yields tend to reflect rate hikes the fastest and rise steeply. Analysts said long-term yields reacted more to the Middle East war issue and rose only slightly.

According to the Korea Financial Investment Association, the three-year Treasury yield closed at 3.766%, up 0.055 percentage point from the previous transaction day. It was the same as on the 15th and the highest since Nov. 14, 2023 (3.857%). The two-year yield was 3.615%, the highest since Dec. 1, 2023, and the one-year was 3.177%, the highest since July 26, 2024.

Shin Hyun-song, governor of the Bank of Korea, speaks at a press briefing on the currency policy stance at the central bank's headquarters in Jung-gu, Seoul, on the 28th. /Courtesy of Photo Joint Press Corps

The market said short-term yields responded as the Monetary Policy Board signaled a stronger-than-expected willingness to raise the benchmark rate. Cho Yong-gu, a researcher at Shinyoung Securities, said, "The governor Shin's remarks today were quite hawkish," adding, "This shock and tension could continue for some time."

Bank of Korea Governor Shin Hyun-song said at a press conference after holding the benchmark rate at 2.5% that "it will be necessary to raise the benchmark rate at an appropriate time going forward." On the minority view favoring a rate hike, Governor Shin explained, "Looking at prices, growth, the exchange rate, real estate and finance, it was a meeting where (Monetary Policy Board members) shared perceptions, making it easy to gather opinions," adding, "There were strategic differences under largely the same view." This is interpreted to mean most board members agreed on a hike but differed over the timing.

Long-term yields closed slightly higher on uncertainty over the Middle East war rather than the Monetary Policy Board. The 10-year yield, the benchmark for Treasury rates, rose to 4.147%, up 0.045 percentage point from the previous transaction day.

Gong Dong-rak, a researcher at Daishin Securities, said of long-term yields, "As issues related to the Iran war came to the fore and stocks fell, (Treasury) yields rose," adding, "Since the afternoon, as the exchange rate and other factors stabilized, yields appear to have come down."

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