Korea Bond Market Daily Report(Gemini): 12/9/2024
Korea Bond Market Daily Report
Treasury yields
| Treasury yields | Recent | DoD (bp) | YTD (bp) | YoY (bp) |
|---|---|---|---|---|
| 3Y KTB | 2.62% | ▲ 1.7 | ▼ 62.0 | ▼ 84.3 |
| 10Y KTB | 2.74% | ▲ 0.6 | ▼ 56.2 | ▼ 78.9 |
| Term Spread(bp) | 12.4 | ▼ 1.1 | ▲ 5.8 | ▲ 5.4 |
| Corp. AA- 3Y | 3.21% | ▲ 1.8 | ▼ 76.8 | ▼ 95.8 |
| Credit spread(bp) | 59.2 | ▲ 0.1 | ▼ 14.8 | ▼ 11.5 |
US Treasury Yields
| US Treasury Yields | Recent | DoD (bp) | YTD (bp) | YoY (bp) |
|---|---|---|---|---|
| 2Y US Treasury | 4.10% | ▼ 5.2 | ▼ 23.2 | ▼ 61.2 |
| 10Y US Treasury | 4.15% | ▼ 2.1 | ▲ 19.9 | ▼ 8.1 |
| Term Spread(bp) | 5.1 | ▲ 3.1 | ▲ 43.1 | ▲ 53.1 |
[Market Trends].
Although the November non-farm payrolls in the US beat expectations, the confirmation of a slowing trend in US employment increased the likelihood of a December rate cut. In response, US Treasury rates fell. The US 10-year Treasury yield stood at 4.15% (-2.3 basis points) and the 2-year Treasury yield stood at 4.10% (-4.0 basis points).
Domestically, government bond rates rose on concerns over political unrest: the 3-year government bond rate stood at 2.62% (+1.7 basis points) and the 10-year government bond rate stood at 2.74% (+0.6 basis points). The won/dollar exchange rate rose to 1,423.0 won (+5.70 won).
[Top economic news and events].
Top U.S. News
The US jobs report for November showed that the number of new non-farm payrolls beat expectations, suggesting that the US economy remains on a solid growth path. However, the unemployment rate also beat expectations, raising expectations for a pace of interest rate hikes in the future.
Expectations are growing for a possible rate cut by the US Federal Reserve. Markets are pricing in more than an 80% chance of a December rate cut, which is leading to lower Treasury yields.
Featured News
Political unrest stemming from the impeachment crisis is exerting upward pressure on the domestic bond market, particularly on short-term rates, with the upward trend likely to extend further if political uncertainty persists. Ahead of the vote on the President's impeachment bill, concerns about the possibility of a second round of martial law have raised domestic interest rates.
Analysts have suggested that a possible pivot to expansionary fiscal policy, such as a supplemental budget early next year, could be fodder for a correction in long-term interest rates. Based on interest rate movements during the 2017 impeachment, the 3-year and 10-year government bond rates could rise to 2.79% and 3.10%, respectively. However, given that both the U.S. and South Korea are in a rate-cutting cycle and foreigners are bullish, some expect a limited bearish outlook as domestic institutions are likely to buy bargains.
Other News and Events
Bloomberg broke the news that Syrian state television reported the fall of the Assad regime, a development that could further destabilize the Middle East.
The conflict between Israel and the Palestinians has led to increased instability in Israel's financial markets. Israeli bond yields are limited from rising further, exchange rate volatility is rising, and the stock market is heading rightward. Reports of Israeli troops entering the Syrian buffer zone are also increasing geopolitical risks in the Middle East.
[Response Strategy].
You should carefully revisit your portfolio strategy in light of current market conditions. You may want to consider adjusting your allocations to government bonds and blue-chip corporate bonds, as safe-haven behavior may intensify during periods of political uncertainty. Investment strategies should also take into account the possibility of lower U.S. interest rates, and contingency plans should be in place for currency volatility. It is important to increase monitoring of geopolitical risks and to have a strategy that is flexible enough to respond to changing market conditions.
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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