Treasury Bonds

 

The three-year Korean treasury bond rate increased by 0.028 percentage points to 1.596 percent between Sept. 30 and Oct. 1. Likewise, the five and 10-year rates climbed 0.038 and 0.046 percentage points to 1.761 percent and 2.107 percent, respectively.

According to industry sources, treasury bond prices are likely to continue rising until the key rate announcement scheduled for Oct. 15, as the Monetary Policy Committee of the Bank of Korea is expected to cut the base rate in spite of the possibility of an interest rate hike by the Fed. In addition, global investors’ increasing preference for risk-free assets is contributing to this trend as well. Under the circumstances, it has been pointed out that the three-year treasury bond rate could be exceeded by the official rate, as it was for about three weeks from late March this year.

These days, the 10-year U.S. treasury bond rate exceeds its Korean counterpart more frequently than before. For example, the former rose 0.015 percentage points to 2.068 percent on Sept. 30, when the latter fell short of it by a margin of 0.007 percentage points. Such a reversal was witnessed once in June, three times in the following month, and for over five days in the latter half of last month.

The 30-year U.S. treasury bond rate, in the meantime, has been above its Korean counterpart all the way since March this year. On the last day of the previous month, the former reached 2.878 percent and the latter was 2.295 percent.

The reversal is unlikely to trigger a large-scale capital outflow, though. “A large portion of the bonds foreigners invest in here have a maturity of three years or less, and thus the reversal’s effect on the market is likely to be rather limited,” said a market expert.

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