Global bond yields are surging as inflation concerns rise due to increasing oil prices from the Middle East. Long-term government bond yields in major countries, including the U.S., Japan, and the U.K., have reached their highest levels in years, while South Korea's government bond yields are also on the rise. The anticipation of interest rate hikes by the Bank of Korea, combined with the burden of government bond issuance due to expansionary fiscal policies, is intensifying upward pressure on the domestic bond market.
According to the Korea Financial Investment Association, the yield on the 3-year government bond rose to 3.930% on September 2, an increase of 5.2 basis points from the previous trading day. The yield on the 10-year bond also increased by 4.7 basis points to 4.418%. This marks the fourth consecutive day of rising yields, influenced by global rate increases and the anticipated burden of government bond issuance next year.
Yields on government bonds in major countries have also risen sharply. On September 1, the yield on the U.S. 10-year Treasury bond, a benchmark for the global bond market, closed at 4.799%, up 4.80 basis points from the previous day. This is the first time the yield has reached 4.8% since January of last year. In Japan, the yield on the 10-year bond rose to 3% during trading, the highest level since October 1996. The U.K.'s 30-year government bond yield surged to 5.919%, the highest since 1998.
The simultaneous rise in global bond yields is attributed to inflation concerns stemming from geopolitical instability in the Middle East and rising oil prices. Additionally, the increased issuance of government bonds due to fiscal expansion in major countries has dampened investor sentiment in the bond market.
The outlook for U.S. monetary policy has also impacted bond yields. According to the CME FedWatch, the probability of a 25 basis point rate hike by the Federal Reserve in September is estimated at 67.2%, an increase of about 7 percentage points from the previous week.
In South Korea, government bond yields continue to rise. The yield on the 3-year government bond has increased by 97.7 basis points this year. The 5-year and 10-year bonds have also risen by 92.7 basis points and 103.3 basis points, respectively. The heightened inflation concerns from the Middle East have led to market expectations of a tightening shift by the Bank of Korea.
The burden of government bond issuance due to expansionary fiscal policies is also cited as a factor contributing to rising yields. The net increase in government bonds for next year is projected at 96.3 trillion won, a reduction of 13 trillion won from this year, but still larger than the anticipated 60 trillion won.
Analyst Ahn Ye-ha from Kiwoom Securities stated, "While the decrease in the net issuance of government bonds could limit the upper bound of yields, the 12.8% increase in total expenditure from expansionary fiscal policy is likely to raise government bond yields through growth and inflation. Expansionary fiscal policy is expected to elevate the Bank of Korea's terminal rate or prolong the current rate hike, exerting the most direct upward pressure on 3- to 5-year bond yields."
* This article has been translated by AI.
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