Korea Bond Market Daily Report(Gemini): 10/24/2024
Korea Bond Market Daily Report
Treasury yields
| Treasury yields | Recent | DoD (bp) | YTD (bp) | YoY (bp) |
|---|---|---|---|---|
| 3Y KTB | 2.94% | ▼ 0.7 | ▼ 30.4 | ▼ 111.9 |
| 10Y KTB | 3.13% | ▼ 0.2 | ▼ 17.8 | ▼ 124.6 |
| Term Spread(bp) | 19.2 | ▲ 0.5 | ▲ 12.6 | ▼ 12.7 |
| Corp. AA- 3Y | 3.51% | ▼ 0.4 | ▼ 47.2 | ▼ 135.3 |
| Credit spread(bp) | 57.2 | ▲ 0.3 | ▼ 16.8 | ▼ 23.4 |
US Treasury Yields
| US Treasury Yields | Recent | DoD (bp) | YTD (bp) | YoY (bp) |
|---|---|---|---|---|
| 2Y US Treasury | 4.08% | ▲ 5.2 | ▼ 24.8 | ▼ 96.8 |
| 10Y US Treasury | 4.25% | ▲ 4.8 | ▲ 29.8 | ▼ 61.2 |
| Term Spread(bp) | 16.6 | ▼ 0.4 | ▲ 54.6 | ▲ 35.6 |
[Market Trends].
The 10-year U.S. Treasury yield rose to touch 4.26% intraday, following a weak 20-year Treasury auction and increased caution over Trump's election. Domestic rates also opened higher on Trump's trade policies, but reversed lower on concerns over weak Q3 GDP.
US Treasury yields have risen to 4.23%, reflecting the high probability of a Trump victory. Q4 QRAs will be announced next week on October 28 and 30, local time. Long-term rates are rising, and reverse repo balances have fallen to the low $200 billion range. As we approach the end of the debt ceiling moratorium in January, we will be watching closely for the Q1 Q4 total volume, the mix by maturity, and the Q1 Q4 TGA target.
[Top economic news and events].
Top U.S. News
US Existing Home Sales decreased -1.0%MoM to an annualized rate of 3.84 million in September. This is the lowest level since October 2010. Meanwhile, the median existing home price increased 3%YoY to $404,500 in September, the 15th consecutive month of gains.
Shares drop -5.1% after the Centers for Disease Control and Prevention (CDC) blames McDonald's for an outbreak of 49 E. coli infections, including one death.
Featured News
The preliminary South Korean GDP estimate for Q3 2024 came in at +0.1%, below both the Infomax consensus of +0.5% and the Bank of Korea's estimate of +0.5%. This was a fairly weak performance given the reverse growth in electricity costs in Q2, with the weaker-than-expected contribution from net exports coming in at -0.8 percentage points, contrary to market expectations.
The financial authorities have eased the discount rate regulation for insurers and suspended the application of the 30-year stipulated maturity. This is to reduce the burden on insurers' capital ratios, which have fallen sharply due to the simultaneous application of multiple regulations since the introduction of IFRS17 and K-ICS. Insurers have been under pressure to extend the stipulated maturity to 30 years, especially as interest rates have begun to decline, because valuing insurance liabilities using a discount rate similar to the 30-year Treasury bond rate for longer maturity products would result in much larger liabilities.
Other News and Events
According to the Fed's Beige Book, economic activity has been unchanged in most regions since early September, with modest growth in two regions. Slightly increased long-term optimism, weaker labor demand, limited layoffs, and moderating inflation were reported.
In the 23 days since the Fed's first cut, the combined change in the 2-year and 10-year U.S. Treasury rates has been similar to that of the 1995 actuarial cut. The 10-year Treasury rate has risen to 4.25%.
[Response Strategy].
Canada's big cut demonstrates the polarization of global monetary policy in the face of increased uncertainty over US monetary policy. While the November cut will not be easy, it will likely increase expectations for a January 2025 cut and maintain the 2.75% target for the first half of the year. Weakening growth expectations could lower terminal rate expectations to 2.50% as the U.S. burden lessens.
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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