Concerns over inflation are escalating globally, pushing government bond yields to their highest levels in years and intensifying anxiety in the bond market. Analysts suggest that international oil prices are a key factor influencing future interest rates.
On May 18, the Financial Investment Association reported that the yield on three-year government bonds closed at 3.757%, while the yield on ten-year bonds reached 4.239%. This ten-year yield is the highest since October 13, 2022, when the "Legoland incident" occurred. In May alone, yields rose by 16.2 basis points for three-year bonds and 31.6 basis points for ten-year bonds.
The rise in South Korean government bond yields reflects growing inflation concerns. Persistent high oil prices have driven up energy supply costs, increasing upward pressure on prices, while the economy is performing better than expected.
As a result, the likelihood of the Bank of Korea shifting its monetary policy towards raising interest rates has increased, contributing to this outlook. Additionally, caution surrounding government bond auctions is also seen as a negative factor.
External factors are also influencing bond yields. Following a U.S.-China summit that yielded no significant outcomes, international oil prices have surged past $100 per barrel. Brent crude futures for July delivery rose to $110 per barrel on the ICE Futures Exchange, while West Texas Intermediate (WTI) futures for June delivery on the New York Mercantile Exchange also surpassed $100 per barrel, amid concerns of a stalemate in peace negotiations between the U.S. and Iran.
Yields on government bonds in major economies are also on the rise. As international oil prices climb, inflationary pressures are increasing, leading to widespread concerns about central bank tightening. According to the CME FedWatch Tool, the futures market reflects a 41.7% probability that the Federal Reserve will raise interest rates by December this year.
The yield on the benchmark U.S. 10-year Treasury bond reached 4.597% on May 15 and continues to rise, currently hovering around 4.6%. The yield on the sensitive two-year U.S. Treasury bond is above 4.10%, while the 30-year bond yield has exceeded 5.14%, marking its highest level since 2007.
Japanese government bond yields have also surged, contributing to global bond market instability. Following an unexpected rise in Japan's inflation rate in April, the yield on the 10-year Japanese government bond climbed to around 2.7%, the highest level in 29 years since 1997. In the UK, bond yields have reached their highest levels in decades as a pro-expansion prime ministerial candidate emerges.
Experts predict that the current surge in yields is unlikely to reverse anytime soon. Im Jae-kyun, a researcher at KB Securities, stated, "With yields rising sharply, the government intervened verbally on May 15, but the Bank of Korea has shifted towards raising interest rates. Given the concerns about supply and demand, market instability is unlikely to ease quickly."
Ultimately, international oil prices are seen as a critical variable for the future direction of interest rates. Ahn Ye-ha, a researcher at Kiwoom Securities, noted, "The structural increase in term premiums due to expanded fiscal burdens in major countries is unlikely to be easily resolved, so significant declines in oil prices are necessary for market interest rates to change direction. This means that as long as geopolitical uncertainties persist, volatility is likely to continue."
* This article has been translated by AI.
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