South Korean government bond yields surged on the 22nd as escalating US-Iran war tensions drove international oil prices sharply higher. The 3-year national bond yield rose 4.6 basis points to 3.913%, the 10-year climbed 6.6bp to 4.394%, and the 30-year increased 7.1bp to 4.635%, marking the highest 30-year yield on record. Rising US Treasury yields in Asian trading and investor caution ahead of the next day's Q2 GDP and GDI release added downward pressure. Brent crude closed at $91.01 per barrel in overnight New York trading, up $1.79 (2.01%), its first close above $90 since the 11th of the previous month, fueling inflation concerns and expectations of a Federal Reserve rate hike at the upcoming FOMC meeting.
3-Year Yield Hits Highest Level Since June 8, 30-Year Reaches Record
The 3-year government bond final quote yield of 3.913% represented the highest level since June 8, when it reached 3.940%. The 30-year yield of 4.635% set a record high. The 3-year bond futures fell 18 ticks to 102.70, while 10-year futures dropped 62 ticks to 104.56. Foreign investors net sold approximately 7,900 contracts of 3-year futures and 6,400 contracts of 10-year futures, while financial investment firms net purchased roughly 4,900 contracts of 3-year futures and 6,500 contracts of 10-year futures.
Oil Surge and War Concerns Drive Market Weakness
Brent crude September futures rose $1.79 (2.01%) to close at $91.01 per barrel on the New York Mercantile Exchange overnight, marking the first close above $90 since the 11th of the previous month. The oil price surge intensified inflation concerns and heightened expectations of a rate hike at the upcoming Federal Open Market Committee (FOMC) meeting, pressuring the New York bond market lower. Domestic producer price data released before market open showed June producer prices flat month-over-month and up 8.6% year-over-year. The Bank of Korea assessed that secondary spillover effects from the Middle East war continue and will exert upward pressure on consumer prices for the time being. The 30-year government bond yield broke through 4.6% in early trading, reaching a record high on an intraday basis, though the 10-year segment rose more sharply, indicating the 30-year segment did not show particularly weaker performance.
Foreign Investors Shift to Net Selling in Afternoon Session
Foreign investors initially maintained buying momentum in bond futures during early trading but reversed to net selling and increased the scale of sales as the session progressed. In the afternoon, selling accelerated as caution intensified ahead of the next day's GDP release. Market participants interpreted the move as investors reducing long positions in anticipation of strong economic data. The 3-year bond futures recorded approximately 149,000 contracts traded with open interest rising by roughly 17,000 contracts. The 10-year bond futures saw 66,000 contracts traded with open interest declining by 145 contracts.
Market Participants Monitor Q2 GDP Release Scheduled for Next Day
Bond market participants stated they must closely watch the Q2 growth rate indicator scheduled for release the next day. A bond dealer at a securities firm explained, "The market has prepared for strong data and concerns about back-to-back rate hikes, but the key is how strong the data will be." Yonhap Infomax's survey of 13 domestic macroeconomic experts (screen number 8552) showed a consensus forecast of 0.37% quarter-over-quarter growth for Q2. Another securities firm bond dealer noted, "Unlike real GDP, real GDI is unfamiliar and the market lacks a proper consensus. Since it's an unfamiliar concept, it will likely take time to interpret the data after release."
FAQ
What caused South Korean bond yields to surge on the 22nd?
Yields rose as escalating US-Iran war tensions drove Brent crude oil prices to close at $91.01 per barrel, up $1.79 (2.01%), fueling inflation concerns and expectations of a Federal Reserve rate hike at the upcoming FOMC meeting. Additional pressure came from rising US Treasury yields in Asian trading and investor caution ahead of the next day's Q2 GDP and GDI release.
How high did the 30-year government bond yield reach?
The 30-year government bond yield increased 7.1 basis points to 4.635%, setting a record high. The yield broke through 4.6% during intraday trading, marking the highest level on an intraday basis as well.
What was the market's expectation for Q2 GDP growth?
Yonhap Infomax's survey of 13 domestic macroeconomic experts showed a consensus forecast of 0.37% quarter-over-quarter growth for Q2. Market participants reduced long positions in anticipation of strong economic data ahead of the release scheduled for the next day.
