South Korean government bond yields declined across all maturities on the morning of the 10th, with long-term bonds leading the decline in a bull flattening move. The 3-year benchmark Korea Treasury Bond (KTB) yield fell 1.1 basis points to 3.769%, while the 10-year yield dropped 2.0bp to 4.242% and the 30-year yield declined 2.5bp to 4.437% as of 11:24 AM. The decline was driven by a sharp drop in Japanese Government Bond (JGB) yields, particularly in long-term maturities which fell over 10 basis points, alongside buying inflows into the short-term credit market and heightened caution ahead of next week's Bank of Korea monetary policy committee meeting. The yield curve flattened as long-term bond yields fell more sharply than short-term yields, reflecting improved market sentiment after concerns over aggressive rate hikes had weighed on investor psychology earlier in the week.
Bond Futures Rise as Foreign Investors Sell Contracts
The 3-year KTB futures contract rose 3 ticks to 103.12, while the 10-year KTB futures contract climbed 15 ticks to 106.04. Foreign investors net sold 2,410 contracts of 3-year bond futures and 817 contracts of 10-year bond futures during the session. Bond yields opened lower despite falling international oil prices and rising U.S. interest rates, as market participants remained cautious ahead of next week's Bank of Korea monetary policy committee meeting.
JGB Decline and Credit Market Recovery Support Bond Rally
Korean government bond yields turned stronger during the morning session, led by long-term maturities, as JGB yields dropped over 10 basis points in long-term maturities. The 50-year bond auction held on the day showed solid demand. The short-term credit market showed signs of recovery this week amid a declining exchange rate and stock market correction, contributing to the strength in government bond yields. Short-term credit instruments attracted buying interest on expectations of carry returns, as market forecasts suggested the Bank of Korea's rate hike cycle may be limited to four increases at most. A bond dealer at a securities firm noted that 1-year Korea Development Bank bonds were issued at below-market yields, indicating stability in the short-term market, and that the 50-year auction showed solid demand even as selling pressure emerged.
Bond Dealers Cite Stabilizing Sentiment and Solid Auction Demand
A bond dealer at another securities firm stated that while market sentiment has not fully recovered, the psychology that had been dampened by concerns over big-step rate hikes has eased somewhat, leading to stabilization. A bond dealer at a bank observed that falling external interest rates and a stock market rebound appear to be offsetting each other, though it remains difficult for a clear directional trend to emerge.
FAQ
What caused South Korean government bond yields to fall on the 10th?
Yields declined due to a sharp drop in Japanese Government Bond yields (over 10bp in long-term maturities), buying inflows into the short-term credit market, and caution ahead of next week's Bank of Korea monetary policy committee meeting.
How much did the 10-year Korea Treasury Bond yield fall?
The 10-year KTB yield dropped 2.0 basis points to 4.242% as of 11:24 AM on the 10th.
