[채권마감] US interest rate shock hits 2% of 10-year intraday’highest in 1 year and 11 months’

10-3 year spread 10 years and 1 month, BEI 6 years and 5 months highest
US interest rate surge + foreign futures selling + end-of-month factors overlap.. bear market likely to continue
Low price + BOK’s announcement of simple purchase plan
Disappointed without announcement of specific plan for simple purchase of BOK

The bond market was weak for the second day (based on 10-year KTBs). The 10-year Treasury Bond interest rate was in the 2% range during the week. The interest rate for ultra-long-term bonds over 10 years of KTBs peaked in 1 year and 11 months.

The yield curve also widened as long-term contracts were weaker than short-term products. The difference in interest rates between 10-year KTBs and 3-year Treasury bonds broke the maximum in 10 years and 1 month, putting 100bp in the visible range. With relatively strong inflationary bonds, the break-even inflation (BEI), the difference in interest rates between 10-year KTBs and inflation bonds, was close to 140bp, reaching its highest level in 6 years and 5 months.

At night, the 10-year U.S. bond interest rate touched 1.6%, and it was affected. Foreigners also started selling in bulk in the government bond futures market. The month-end factor also contributed to the bearish market. There was an inflow of low-priced purchases during the intraday, and the bank of Korea showed a lull as it announced that it would simply purchase KTBs worth 5 trillion won to 7 trillion won in the first half of this year. However, disappointment was poured out when there was no announcement of a specific simple purchase plan until the curtain board.

Participants in the bond market saw the recent trend of global interest rates rising as difficult to break. Amid rising interest rates at home and abroad, the BOK predicted that simple purchases would only be finely adjusted.

According to the bond market and financial investment association on the 26th, the two-year Tongan rose 0.7bp to 0.874%, and the three-year government treasury rose 2.5bp to 1.020%. The 5-year KTB rose 7.5bp to 1.449%. This is the highest since March 23rd (1.462%) last year.

The 10-year KTB rose 7.6bp to 1.960%, the 20Y KTB rose 4.1bp to 2.044%, and the 30Y and 50Y KTBs rose 5.1bp to 2.055%, respectively. This is the highest level since March 2019 (1.981% on the 20th, 2.055% on the 12th, 2.057% on the 7th, and 2.057% on the 4th), respectively. The 10-year KTB inflation ended at 0.590%, up 4.8bp.

When looking at the difference in interest rates between the BOK’s standard interest rate (0.50%) and KTB, it was 52.0bps compared to the 3-year bond. The 10-year bond was 146.0bp, the highest since May 4, 2011 (147bp). The fifty-year price was 155.5bp, a record high.

The spread for 10-3 years increased by 5.1 bp to 94.0 bp. This is the highest since January 18, 2011 (101bp). BEI rose 2.8bp to 137.0bp, the highest since September 25, 2014 (138.0bp).

The 3-year Treasury bond futures maturing in March recorded 111.44, down 14 ticks from the battlefield. This is the lowest since the 25th of last month (111.44). During the week, it fell to 111.32, the lowest since April 21 (110.24) last year. The intraday high was 111.49. The intraday fluctuation was 17 ticks, the largest since November 4 (20 ticks) last year.

Outstanding payments were 40,077 contracts, and the transaction volume was 23,8632 contracts. The original month outstanding was 31 contracts and the transaction volume was 6 contracts. The combined transaction volume of near-month and original-month products hit a new high since May 28 (24,993 contracts) of the previous year. The combined turnover was 0.59, which was also the highest since May 28 (0.65) last year.

By trading entity, foreigners net sold 13,783 contracts. This is the majority of the net purchase of 10,802 contracts the day before. On the other hand, net purchases were 5584 contracts for financial investment, 3377 contracts for banks, 1969 contracts for investment trust, and 1202 contracts for pension funds.

The 10-year Treasury bond futures with maturity in March ended at 127.50, which plunged 92 ticks from the previous day. The intraday low was 127.21. Both the closing price and the low price were the lowest since March 20, 2019 (127.16 for closing and intraday, respectively). The high price was 127.93. The intraday fluctuation was 72 ticks. On the 24th, it showed 73 ticks and reached the maximum after 3 months.

Outstanding payments were 13,701 contracts, and transaction volume was 11,7495 contracts. The original month outstanding was 28 contracts and the transaction volume was 6 contracts. The combined transaction volume of near-month and original months was the highest since May 28, last year (11,8902 contracts). The combined turnover also reached 0.90 times, the largest since March 2 (0.96) last year.

By trading entity, foreigners net sold 7449 contracts and continued mass selling for three consecutive days. The estimate of foreigners’ 10th-line cumulative net buying position was only 17,300 contracts, breaking the lowest level since January 30 last year (16,277 contracts).

On the other hand, financial investment continued to buy for the third day by net buying 4243 contracts. Insurance also seemed to purchase 2206 contracts. This is the highest net purchase per day since March 13, last year (2424 contract). Pension funds also net bought 1177 contracts, continuing the net purchase for six consecutive trading days. This is the longest net buying record since the 10th consecutive net buying recorded from November 17th to 30th last year.

In the case of the in-kind futures theorist, the 3rd line scored 7 ticks for the low rating and the 10 line scored 10 ticks for the low rating, respectively. There were no spreads between the 3rd and 10th lines.

A bond dealer of a securities company said, “The interest rate in won-denominated bonds also started sharply from the beginning of the market due to the impact of the surge in US bond rates the previous day. Interest rates continued to rise as foreign futures selling and end-of-month factors matched. It also reached 2% on a 10-year basis. Since then, the inflow of low-priced purchases and the announcement of a simple purchase plan by the BOK have shown a lull, but they have not been able to dampen the bearish sentiment. At the curtain board, I was hoping for a specific announcement of the simple purchase of the BOK, but it was canceled and disappointed items came out.”

He also said, “There is a possibility that the interest rate will rise sharply, leading to a low-priced buying trend. However, it seems difficult to break the trend of rising global interest rates. It seems that Haneun also will only intervene in the degree of smoothing.”

A bond dealer of an asset management company said, “Due to the surge in foreign interest rates, including the US, domestic interest rates have also risen significantly. As the spread of Corona 19 declined rapidly, expectations for inflation due to economic recovery and rising asset prices and raw material prices acted as a factor in rising interest rates. Despite the rise in long-term interest rates, the fact that the Fed did not mention the purchase of long-term bonds also contributed to market uncertainty.”

He continued, “It is not a situation that can change the current interest rate trend. However, as the US 10-year interest rate has risen to the level before Corona 19, it seems necessary to adjust the speed according to the short-term surge.”