U.S. Treasury yields are showing troubling signs. The yield on the benchmark 10-year Treasury note has recently surpassed 5%, while the 30-year yield has crossed the 5.5% mark. Some market analysts predict that the 30-year yield could rise to 6%. This situation marks a stark contrast to a time when near-zero interest rates were taken for granted.
The issue is that the current rise in interest rates cannot be attributed solely to temporary inflation shocks or the tightening measures of the U.S. Federal Reserve. The massive fiscal deficit and increased issuance of Treasury bonds in the U.S. are structurally pushing long-term rates higher. Additionally, rising international oil prices are exerting inflationary pressure, compounded by large-scale corporate financing for artificial intelligence (AI) investments. This suggests that even if the benchmark rate decreases, long-term rates may not return to previous lows.
South Korea is particularly vulnerable to high U.S. interest rates. When U.S. Treasury yields rise, domestic government bond yields also face upward pressure. This leads to increased borrowing costs for households and businesses as bank and corporate bond rates follow suit. High U.S. rates also contribute to a stronger dollar and a weaker won, which can drive up import prices for crude oil and raw materials, further stimulating domestic inflation. There is also a risk of increased volatility in the stock and bond markets due to shifts in foreign capital.
As a result, the scope for monetary policy is narrowing. Lowering interest rates in response to sluggish economic growth raises concerns about exchange rates, inflation, and capital outflows, while maintaining high rates increases the interest burden on households and businesses. For South Korea, which carries a significant household debt load, neither option is straightforward.
Businesses and financial markets are also on edge. If corporate bond and loan rates remain high, companies may struggle to invest, and financially weak firms could face increased interest burdens. There is a risk of renewed financial instability in interest-sensitive sectors such as real estate project financing. Rising Treasury yields also increase the government's interest burden, constraining fiscal management.
Therefore, it is essential to rethink the premises of macroeconomic policy. The expectation that U.S. rates will soon decline and return us to a low-interest environment must be abandoned. Monetary policy should be managed cautiously, taking into account inflation, growth, exchange rates, and household debt. Fiscal policy should prioritize spending adjustments and maintain fiscal soundness rather than relying on Treasury bond issuance as a response to economic conditions. Careful management of the volume and timing of bond issuance is also necessary to avoid unnecessarily increasing upward pressure on rates.
Financial authorities must assess risks based on the assumption that high rates may persist longer than expected. Stress tests for vulnerable borrowers, financially weak firms, and real estate project financing should be strengthened to prevent a surge in market rates from leading to financial instability.
It remains uncertain whether the yield on 30-year U.S. Treasuries will actually reach 6%. What is crucial is not the number itself, but the structural change indicating that the global economy is moving away from the low-interest era that has prevailed for the past decade. South Korea must not simply wait for rates to decline. It needs to build an economic structure capable of withstanding prolonged high rates. The warning from the era of 5% U.S. Treasury yields should not be taken lightly.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.