Korea Bond Market Daily Report(Gemini): 1/16/2025
Korea Bond Market Daily Report
Treasury yields
| Treasury yields | Recent | DoD (bp) | YTD (bp) | YoY (bp) |
|---|---|---|---|---|
| 3Y KTB | 2.67% | ▲ 2.9 | ▲ 16.8 | ▼ 51.6 |
| 10Y KTB | 2.86% | ▲ 1.9 | ▲ 11.1 | ▼ 43.3 |
| Term Spread(bp) | 18.5 | ▼ 1.0 | ▼ 5.7 | ▲ 8.3 |
| Corp. AA- 3Y | 3.31% | ▲ 2.3 | ▲ 11.8 | ▼ 62.4 |
| Credit spread(bp) | 64 | ▼ 0.6 | ▼ 5.0 | ▼ 10.8 |
US Treasury Yields
| US Treasury Yields | Recent | DoD (bp) | YTD (bp) | YoY (bp) |
|---|---|---|---|---|
| 2Y US Treasury | 4.27% | ▼ 10.4 | ▲ 1.6 | ▲ 12.6 |
| 10Y US Treasury | 4.66% | ▼ 12.5 | ▲ 8.5 | ▲ 69.5 |
| Term Spread(bp) | 38.9 | ▼ 2.1 | ▲ 6.9 | ▲ 56.9 |
[Market Trends].
The US released December CPI, with headline CPI coming in at 0.4% MoM and 2.9% YoY, in line with expectations. Core CPI came in below expectations at 0.2% MoM and 3.2% YoY. The potential slowdown in underlying inflation revived expectations for a rate cut in the first half of the year and sent US Treasury yields lower. The 10-year Treasury rate fell sharply to around 4.7%.
The December PPI release in the United States showed that healthcare and insurance services prices were flat month-over-month, while airfares surged. There are many different interpretations of inflationary trends, with a surge in transportation services, a rise in financial services, and a decline in insurance services. This mixed bag of inflation indicators is raising uncertainty about the future direction of monetary policy.
[Top economic news and events].
Top U.S. News
December CPI for the United States has been released. Headline CPI increased 0.4% month-over-month and 2.9% year-over-year, meeting expectations. Core CPI increased 0.2% m/m and 3.2% y/y, missing expectations. The potential slowdown in core inflation has increased expectations for a rate cut.
US 10-year Treasury yields have fallen sharply to the low 4.7% range, a result of a flight to safety following the release of US CPI and growing expectations of slower underlying inflation. The optimistic outlook of US SMEs is also believed to have contributed to the fall in rates.
Featured News
Since the November meeting, there have been a number of factors that have raised expectations for a domestic rate cut: political instability, the Muan Airport tragedy, the December unemployment report, and the December CPI release in the U.S. On the other hand, the outcome of the December FOMC meeting and the December employment report in the U.S. have supported the possibility of a rate hold. As a result, the consensus for a January rate cut has tilted toward a hold after the December employment report and the exchange rate surge, but the outlook for the timing and extent of the Fed's rate cut has since been revised again after the December PPI and CPI releases.
The domestic bond market recently saw a rise in government bond rates following the release of the US CPI. Despite the decline in US Treasury rates, domestic rates rose, reflecting the 2.4% MoM increase in the December import price index and the market's wait-and-see attitude ahead of the BOK's monetary policy announcement. Currently, the 3-year, 10-year, and 30-year Treasury bills are at 2.68%, 2.86%, and 2.69%, respectively. Long- and short-term interest rate differentials and 10Y-3Y Treasury spreads are also showing volatility.
Other News and Events
In the US, the New York manufacturing index hit -12.6 in January, the lowest reading since May of last year, which could be interpreted as a negative sign of possible slowing growth in the US economy.
Bank of Japan Governor Kazuo Ueda hinted at a possible benchmark rate hike along with monetary policy adjustments if the economy continues to improve. He said the decision to raise rates will depend on the momentum of the U.S. economy and the outcome of the spring elections, and will discuss whether to raise rates at the January meeting.
[Response Strategy].
You should closely monitor U.S. CPI and PPI data releases, U.S. Treasury rate movements, and other key economic indicators at home and abroad to flexibly respond to changing market conditions. In particular, you should adjust your portfolio strategy based on forecasts of the timing and extent of future rate cuts by the U.S. Federal Reserve and analysis of possible changes in domestic interest rate policy. You should also strengthen your monitoring of exchange rate volatility and thoroughly manage risks from domestic and international political and economic events.
Disclaimer The information contained in this report has been obtained from sources believed to be reliable, but we do not guarantee its accuracy or completeness. This report is for informational purposes only and is not a solicitation or offer to buy or sell any security or financial instrument. Opinions expressed in this report are subject to change without notice. Investment decisions are the sole responsibility of the investor and you should seek professional advice as needed
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