Won slides 70 won in a month…Korea Treasury yields also climb to fresh highs day after day

Source

Korea Economic Daily

Summary

It said the won-dollar exchange rate surged 69.2 won (4.59%) in a month amid fallout from the war in the Middle East, sharply depreciating the won’s value.
It noted that as global oil prices and the U.S. dollar jumped together, the three-year Korea Treasury yield rose 0.541 percentage points, with Korea Treasury yields climbing to fresh highs.
It said borrowing costs are also rising, with foreigners net selling 45,302 government bond futures contracts and mortgage rates at the four major banks up 0.3 percentage points this month alone.

Forecast Trend Report by Period

Surge in safe-haven demand for dollars

"If ground troops are deployed, it will top 1,550 won"

The won has depreciated 4.59% over the past month as oil prices and the dollar surged amid the war in the Middle East. The yield on three-year Korea Treasury bonds, which serves as a benchmark rate in the bond market, also jumped 0.54% points.

On the 27th in the Seoul FX market, the won-dollar exchange rate finished daytime trading at 1,508.9 won, up 1.9 won from the previous day. It has climbed 69.2 won (4.59%) from Sept. 27, before the outbreak of the war. As risk aversion spread across global financial markets, investors flocked to the safe-haven dollar. In particular, the won-dollar rate has been soaring as the dollar strengthens in tandem with international oil prices. This comes as the view gains traction that a spike in global oil prices will stoke U.S. inflation and act as a factor for policy rate hikes.

Over the past month, the won-dollar exchange rate has topped 1,500 won intraday 11 times. On the 23rd, it rose as high as 1,518.40 won intraday. Seo Jeong-hoon, a researcher at Hana Bank, warned that "if the U.S. deploys ground troops, it could even break 1,550 won."

Korea Treasury yields are also scaling new highs. In the Seoul bond market, the three-year Korea Treasury yield ended the session up 0.03% points at 3.582%. Yields continued to rise despite the announcement the previous day of emergency buybacks of Korea Treasury bonds totaling 5 trillion won. The yield has surged 0.541% points from Sept. 27 (3.041%). Foreign investors net sold 45,302 contracts of government bond futures (par value 4.5302 trillion won) from the 1st to the 26th of this month, as concerns over bond price declines compounded worries about FX losses. Yoon Yeo-sam, a researcher at Meritz Securities, said the move reflects an "abnormal assumption" that Korea will raise its policy rate four to five times.

Loan rates are also jumping. Fixed-rate mortgages (five-year reset, hybrid) at the four major commercial banks—KB Kookmin, Shinhan, Hana and Woori—are at 4.52–6.22%, up about 0.3% points so far this month alone.

Shim Seong-mi/Kim Ik-hwan/Kim Jin-seong, reporters smshim@hankyung.com