Fixed Income Monthly
The author is an analyst of NH Investment & Securities. He can be reached at sw.kang@nhqv.com -- Ed.
Although the US banking crisis has yet to be resolved completely, a short-term lull has arrived, at the very least. Accordingly, the Fed should signal clearly for a May rate hike. We expect further inversion of the US 10yr-2yr spread. At home, a unanimous rate freeze is anticipated at the April MPC meeting.
Banking crisis enters lull
In the first wave of movement following the bankruptcy of SVB over Mar 8~15, there was a large-scale transfer of deposits from small banks to larger players. Of note, in the second wave (Mar 15~22), withdrawals from small banks decreased drastically, but large-scale withdrawals from big banks were observed. In our estimation, the primary end destination has been MMFs, and considering the inflow to MMFs, bank deposit withdrawals look to have continued in the last week of March. The securing of bank deposits is likely to be a long-term battle.
Alongside the ending of rapid fund outflows from small banks, which were a concern, the size of commercial banks’ borrowings from the central bank has also peaked. Market participants should now be able to take a breather from worries over systemic risks. Meanwhile, the Fed is attempting to clarify its May rate hike position and correct expectations for a rate cut. A combination of unresolved credit crisis aftershocks, a hawkish Fed, and slowing consumption should result in higher short-term yields and lower long-term yields.
April BOK MPC: Expect unanimous rate freeze
At the February MPC meeting, the possibility of additional rate hikes was left open to accommodate any re-acceleration in tightening by the Fed. However, the recent credit event has removed the Fed’s re-acceleration option. Accordingly, the BOK should see no justification for further rate increases.
In addition, jeonse price decline (based on KB Real Estate statistics) continued to steepen in March. Considering the time lag of about five months between the market price index and the jeonse price index of the National Statistical Office, base effects of jeonse and monthly rent prices and energy prices should coincide in Korea in 2Q23. In line, inflation stabilization should accelerate in 2Q23. We anticipate a unanimous decision to freeze at the April MPC.