After nearing an annual 5%... U.S. Treasury yields are on a downward trend

10-year yield stabilizes in the low 4% range

Hardline dove as the next Fed chair

Markets expect yields to fall further

Earlier this year the U.S. 10-year Treasury yield, which had approached an annual 5%, has recently fallen to around an annual 4%. This is because uncertainty from the Trump administration's reciprocal tariffs has eased and the U.S. central bank (Fed) has continued a trend toward lowering the policy rate.

On the 2nd (local time) in the U.S. bond market, the benchmark 10-year Treasury yield closed at an annual 4.087%, down 0.008% percentage points from the previous day. The policy-sensitive 2-year Treasury yield fell 0.024% percentage points to an annual 3.515%. The 10-year yield surged to about an annual 4.8% on January 13, a week before President Trump's inauguration, and rose to around an annual 4.5% at the time of the reciprocal tariffs announcement. But now it has fallen to the low 4% range.

In the U.S., 'dovish' (favoring monetary easing) remarks by key Fed officials have continued to push down bond yields (and push up bond prices). Ahead of this month's Federal Open Market Committee (FOMC) meeting on the 9~10, John Williams, president of the New York Federal Reserve Bank; Christopher Waller, Fed governor; and Mary Daly, president of the Federal Reserve Bank of San Francisco, have all expressed support for rate cuts.

In particular, Kevin Hassett, chairman of the White House National Economic Council (NEC), who is widely seen as the presumptive next Fed chair, is known as a 'hardline dove.' Since reports late last month that he is likely to be the next Fed chair, the U.S. 10-year Treasury yield has fallen further. Strategists at Brown Brothers Harriman, the largest U.S. private bank specializing in high-net-worth clients, told The Wall Street Journal (WSJ), "Hassett has consistently called for more aggressive rate cuts, and recently said he agrees with President Trump's view that 'rates could be much lower.'" According to the Chicago Mercantile Exchange (CME) FedWatch tool, the current futures market reflects an 88% probability that the policy rate will be cut by 0.25% percentage points in December.

If U.S. policy rates are cut, the Korea-U.S. interest rate gap will narrow. Currently the Bank of Korea's policy rate is an annual 2.5%, 1.5% percentage points lower than the top of the U.S. policy rate (annual 4.0%). If the Fed cuts its policy rate by 0.25% percentage points in December, the Korea-U.S. rate gap would shrink to 1.25% percentage points. In that case, upward pressure on the won-dollar exchange rate could also ease.

Hankyung reporter hankyung@hankyung.com