As the US Treasury bond rate exceeded 1.5% per year, the Korean bond and foreign exchange market fluctuated on the 26th. The interest rates of Korea’s treasury bonds rose all at once (decrease in bond prices), and the won-dollar exchange rate surged over 15 won (the value of the won plunged). On the same day, the Bank of Korea announced that it would pursue the purchase of KTBs worth 5 to 7 trillion won in the first half of this year to stabilize the financial market.
On that day, the 10-year Treasury bond interest rate in the Seoul foreign exchange market ended at 1.96% per year, up 0.076 percentage points from the previous day. It is the highest level since March 20, 2019 (1.981% per year). The 5-year interest rate rose 0.075% on the day to 1.449% per annum, and the 3-year interest rate also rose 0.025% to 1.02% per year.
The won-dollar exchange rate rose 15 won to 70 per dollar and ended 1123 won 50 before. It is the best price since the last 5 days (1123 won 70).
The soaring market interest rate and exchange rate is the result of a 0.14 percentage point increase in US 10-year Treasury bond rates on the 25th (local time). It is explained that the domestic bond market has been affected by the spread of sentiment that the US economy will recover faster and prices will rise. When expectations for inflation increase, the real interest income of bonds taking inflation into account decreases. That’s why bond prices go down and bond rates go up.
If the US Treasury bond rate rises, the supply and demand conditions in the Korean bond market will worsen. Foreigners sell some Korean Treasury bonds to include more US Treasury bonds, and in the process, Korean Treasury yields rise. In addition, it is explained that the government is raising the interest rate of bonds even further due to widespread observations that the government will begin issuing large-scale deficit government bonds to finance the fourth disaster subsidy.
The dollar is bullish as the US Treasury bond rate jumps. This is because the demand to buy the dollar increases. In the domestic foreign exchange market, there is a growing prospect that the strong dollar trend will continue for quite some time.
Seungji Jeon, a researcher at Samsung Futures, said, “Danger aversion occurs in the process of a sharp decline in the stock price, which will lead to upward pressure on the won-dollar exchange rate.” did.
When the market interest rate soared, the BOK responded. It was announced today that it plans to purchase government bonds worth 5 to 7 trillion won in the first half of this year. Although the benchmark interest rate has been lowered to an all-time low of 0.5% per annum, the effect is halving as the market interest rate rises.
A BOK official said, “Depending on the market situation, the purchase amount may exceed 7 trillion won.” The BOK also bought 11 trillion won worth of government bonds last year.
Reporter Kim Ik-hwan [email protected]
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