Even after the discharge of joint truth sheets containing the outcomes of tariff agreements between Korea and the USA, authorities bond charges proceed to soar, intensifying market instability. As international buyers withdraw, authorities bond-linked financial institution bond charges are rising, driving up mortgage charges whereas deposit charges are additionally climbing again to the three% vary. This phenomenon of rising market rates of interest follows Financial institution of Korea Governor Rhee Chang-yong’s suggestion on Nov. 12 that the interest-cutting cycle, anticipated to finish within the first half of subsequent 12 months, may finish earlier.
In response to the monetary sector on Nov. 16, the 3-year authorities bond yield closed at an annual 2.944% as of Nov. 14, up 0.012 share factors from the day prior to this. This marks the very best degree of the 12 months. The 5-year and 10-year bonds additionally completed buying and selling at 3.126% and three.317% respectively, recording annual highs.
That is because of the market’s retreating expectations for base price cuts and the won-dollar change price sustaining excessive ranges. Overseas buyers are significantly withdrawing from the market. In response to Korea Alternate, from the start of this 12 months by way of November 13, foreigners web offered 2.381 trillion received price of 10-year authorities bond futures. The three-year bond quantity additionally reached 219.5 billion received. The burden is additional compounded by expectations that subsequent 12 months’s authorities bond issuance will attain 232 trillion received, a 12% enhance from this 12 months. “The rationale provide and demand have change into so tangled is because of psychological stress concerning subsequent 12 months’s authorities bond issuance quantity, inflicting foreigners to promote,” mentioned Jung Yong-taek, chief analysis fellow at IBK Funding & Securities. “Since foreigners have already realized earnings and are ending this 12 months’s buying and selling, will probably be tough for demand to materialize till year-end, and monetary sector funding prices may rise additional.”
The issue is that authorities bond charges have a cascading impact on financial institution bonds and monetary sector mortgage charges. The 5-year financial institution bond (unsecured, AAA) price stands at 3.399% as of Nov. 14, up 0.279 share factors in comparison with the tip of final month. That is being mirrored in mortgage and credit score mortgage charges. KB Kookmin Financial institution will increase its hybrid mortgage price to 4.11-5.51% beginning Nov. 17, up 0.09 share factors from the earlier week. This product’s price has been rising sharply by about 0.1 share level weekly all through this month.
Increasing to the 4 main banks, the hybrid price vary is 3.93-6.06%, with the higher restrict exceeding 6% for the primary time in about two years since December 2023. In comparison with the tip of August, the higher restrict has risen 0.514 share factors and the decrease restrict 0.470 share factors. One-year credit score mortgage (Grade 1) charges additionally rose throughout the identical interval, with the vary rising from 3.52-4.99% to three.79-5.25%.
Funding charges are additionally leaping accordingly. Banks are once more providing 1-year time deposits within the 3% vary. As inflation surged and actual rates of interest entered zero territory early this month, banks are elevating deposit charges lower than two weeks later. This follows demand deposits flowing into the inventory market and elevated burden from financial institution bond issuance. At the moment, SC First Financial institution’s e-Inexperienced Save Deposit provides as much as 3.1%. Jeonbuk Financial institution’s JB 123 Time Deposit can be making use of 3.0%. Woori Financial institution raised its Woori First Transaction Preferential Time Deposit price by 0.2 share factors beginning Nov. 14, and Kakao Financial institution elevated time deposit and free installment financial savings charges by as much as 0.15 share factors on Nov. 12.
For 3-month financial institution Certificates of Deposit (CD) charges, whereas charges have been round 2.55% on the finish of final month, they rose to 2.72% on Nov. 14. “Whereas elevating deposit charges will increase funding prices, we’re fastidiously reviewing the extent of price will increase,” mentioned an official from a business financial institution. “Because it’s tough to draw funds by way of financial institution bond issuance alone, now we have no selection however to boost deposit charges to some extent.”
The market expects the monetary sector’s funding market may tighten additional round year-end. “As expectations for base price cuts weaken and authorities bond charges rise, different charges are all following swimsuit,” mentioned an official from monetary authorities. “With out particular countermeasures, charges may proceed to rise.”
