Korea Bond Market Daily Report(Gemini): 10/25/2024
Korea Bond Market Daily Report
Treasury yields
| Treasury yields | Recent | DoD (bp) | YTD (bp) | YoY (bp) |
|---|---|---|---|---|
| 3Y KTB | 2.89% | ▼ 4.5 | ▼ 34.9 | ▼ 111.3 |
| 10Y KTB | 3.07% | ▼ 5.4 | ▼ 23.2 | ▼ 119.5 |
| Term Spread(bp) | 18.3 | ▼ 0.9 | ▲ 11.7 | ▼ 8.2 |
| Corp. AA- 3Y | 3.46% | ▼ 4.8 | ▼ 52.0 | ▼ 135.0 |
| Credit spread(bp) | 56.9 | ▼ 0.3 | ▼ 17.1 | ▼ 23.7 |
US Treasury Yields
| US Treasury Yields | Recent | DoD (bp) | YTD (bp) | YoY (bp) |
|---|---|---|---|---|
| 2Y US Treasury | 4.08% | ▲ 1.3 | ▼ 24.7 | ▼ 93.7 |
| 10Y US Treasury | 4.21% | ▼ 2.6 | ▲ 26.4 | ▼ 61.6 |
| Term Spread(bp) | 13.1 | ▼ 3.9 | ▲ 51.1 | ▲ 32.1 |
[Market Trends].
US weekly jobless claims came in at 227k, below expectations (242k). Also, the October S&P manufacturing PMI came in at 47.8pts and the services PMI at 55.3pts, above expectations (47.5pts and 55.0pts respectively).
Despite better-than-expected unemployment data and PMIs, lower oil prices and bargain hunting drove US 10-year Treasury yields lower. Domestically, domestic rates also fell as Q3 GDP growth missed expectations by a wide margin.
[Top economic news and events].
Top U.S. News
The Fed's reverse repo balance stood at $202.8 billion, the lowest since May 11, 2021.
Stocks have corrected on all three occasions when the 10-year U.S. Treasury rate has risen above 4.25%. It touched 4.25% in October, but has since hovered around 4.2%, and it will be interesting to see if a further rise to 4.3% would trigger a repeat performance.
Featured News
South Korea's Q3 GDP contracted by 0.1% q/q, significantly below expectations (0.5%), with construction investment falling by -2.8% q/q, but a strong +6.8% q/q rise in equipment investment drove the upside. Shin Seung-cheol, head of the Bank of Korea's Economics and Statistics Department, said that in order to achieve this year's GDP growth forecast (2.4%), Q4 growth needs to hit 1.2%QoQ.
In the Seoul bond market, bets on a rate cut in November have intensified following the Q3 GDP shock. However, some observers believe that the BOK will not be able to cut rates too quickly given the high exchange rate.
Other News and Events
In the September jobs report, household survey-based government jobs increased by 785,000, the second-largest increase on record, and while we often see such spikes in election years, this September was the biggest deviation from the average.
The preliminary October S& P Global Manufacturing PMI for the United States came in at 47.8, while the Services PMI came in at 55.3. S & P Global Markets economists explained that business activity continued to grow at a solid pace in October, and the October PMI is consistent with gross domestic product (GDP) growing at an annualized rate of 2.5%.
[Response Strategy].
With rising interest rates from the US trickling down to Korea, it seems more likely that the market will focus on shorter-dated instruments for year-end or next year's food. In the near term, it is appropriate to weigh in on the curve-stop response even though the 3/10 year spread is close to the 20bp target, and given that the 10-year Treasury at 3.1% is an attractive level, we expect the 10/30 year spread to move closer to the mean with the inversion widening to -17bp.
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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