U.S. long-term Government Bonds yields surged to the highest level in years before edging lower on the 3rd (local time). Korea's long-term Government Bonds yields are also falling for a second straight day on the 3rd and 4th. Earlier in July, they hit a record high for the year, dipped for a time, then returned to an upward trend.
As long-term Government Bonds yields swung, the government held a "market conditions review meeting" that day and moved to respond. The government said, "Upward pressure on yields continues," adding, "We will manage the market stably so volatility does not expand excessively."
◇ Korea-U.S. Government Bonds yields dip temporarily… still at year-to-date and all-time highs
Korea's 10-year Government Bonds yield was 4.363% at 3:30 p.m. on the 4th, down 0.004 percentage point from the previous day's close of 4.367%. It marked a two-day decline since on the 2nd. The 10-year Government Bonds yield was in the 3% range from January to May this year, then rose to the 4.2% range in early June. In July, it hit a year-to-date record high of 4.447%, then fell and has hovered around 4.3% since August.
The U.S. 10-year Treasury, the global benchmark for bond yields, stood at 4.769% that day. It had jumped intraday to 4.818% the previous day, the highest since Nov. 1, 2023, before reversing lower. Comments by Federal Reserve Governor Christopher Waller that the policy rate could be kept on hold in September influenced the move. By month, the U.S. 10-year yield was 4.08% in early March, 4.31% in early April, 4.44% in early May, 4.47% in early June, 4.47% in early July, and 4.68% in early August, showing an upward trend.
The U.S. 30-year Treasury yield fell 0.03 percentage point to 5.233%. Still, including the day's move, it has topped 5% for 55 days, which many say remains elevated. That is the longest stretch since 2006. By month, the 30-year U.S. Treasury yield was around 4.71% in early March and 4.89% in early April. But it broke above 5% starting in May. It fell to 4.8%–4.9% in June, then reversed higher from July and climbed to 5.3% in August.
◇ Four key risks: "Middle East war," "policy rate," "government bonds issuance expansion," "AI investment"
At the "market conditions review meeting" that day, the government said, "If yields rise sharply going forward, vulnerable borrowers and mutual finance institutions could face mounting strain."
The government pointed to four key risks that could push Government Bonds yields higher. It assessed that in recent geopolitics, renewed sparks of war in the Middle East could be a driver of higher yields. It also judged that among major economies, expanding government bonds issuance to fund proactive fiscal policy and moves to raise policy rates could translate into higher yields.
In fact, as tensions in the Middle East intensify, international oil prices are rising and the trend toward policy rate hikes is spreading. International oil settled at $95.52 per barrel on the 3rd. It had fallen from $110 in May to $70 in June, but is climbing again. Higher oil lifts inflation. When prices rise, the Central Bank raises the policy rate to tighten liquidity. When this monetary tightening stance is reflected in Government Bonds, yields rise.
As AI corporations increased corporate bond issuance to raise investment funds, major countries also expanded Government Bonds issuance as part of proactive fiscal policy, weighing on the bond market. When Government Bonds and corporate bonds become plentiful in the market, bond prices fall. To issue new bonds, issuers must offer higher yields.
Kim Chan-hee, a researcher at Shinhan Bank, said, "For market yields to stabilize in the short term, geopolitical tensions between the United States and Iran need to ease and it needs to be confirmed that inflation stabilizes consecutively through September."