Concerns Over Government Bond Supply in the Second Half... Upward Pressure on Interest Rates Likely to Increase

BOK: "Concerns Over Expansion of Treasury Bond Issuance Will Grow After Next Year's Budget Announcement"

The Bank of Korea has projected that the government bond yield curve may face upward pressure in the second half of the year. This is because, in addition to dwindling expectations for a base rate cut, there may be heightened caution about the scale of next year’s treasury bond issuances after the budget announcement.

On the 17th, the BOK released a report titled "Key Drivers and Outlook for Recent Changes in the Yield Curve." According to the BOK, the government bond yield curve, which had been trending downward from January to April this year, began to rise again after May. The yield curve is a graph displaying government bond interest rates by maturity, and an upward shift in the curve means that interest rates have generally risen.

The BOK explained that in January to April, growing expectations for a rate cut led to lower interest rates, but after May, the potential for a second supplementary budget created supply-demand pressure in the bond market, pushing up rates. While the BOK expects the yield curve to fluctuate within a limited range during the second half, they see a possibility of upward pressure. They noted that if stimulative fiscal policy effects materialize, expectations for a year-end rate cut could weaken further.

On this day, treasury bond yields climbed across the board. In the Seoul bond market, the yield on three-year treasury bonds closed at 2.479% per annum, up 0.020 percentage points from the previous day. The ten-year yield increased by 0.028 percentage points, reaching 2.905% per annum.

Reporter: Kang Jin-gyu josep@hankyung.com