(Seoul=Yonhap Infomax) The Seoul bond market on the 25th is expected to fluctuate, closely tracking the USD/KRW exchange rate and foreign investor activity.


The previous session saw the USD/KRW rate close at 1,477.10, its highest level since April 9. The rate has now risen for six consecutive trading days, firmly settling in the upper 1,470-won range.


This persistent strength in the dollar has weighed on bonds throughout the session. With the November Monetary Policy Board meeting approaching later this week, market caution over the exchange rate—a key financial stability factor—remains elevated.


Reflecting these concerns, the yield on South Korea’s three-year government bonds once again surpassed 2.9%.


After the market closed, authorities including the Ministry of Economy and Finance, the Bank of Korea, the Financial Supervisory Service, and the National Pension Service announced the launch of a four-party consultative body. The group aims to discuss concrete measures to counter the rapid depreciation of the won, driven by the National Pension Service’s overseas investments.


The key question is whether the National Pension Service will implement strategic FX hedging to stabilize the USD/KRW rate. Market estimates suggest the NPS may act if the rate approaches 1,480 won.


Attention now turns to whether this news will prompt a pullback in the exchange rate. Should the current level persist through the Monetary Policy Board meeting in two days, it will be difficult for the Board to adopt a less hawkish stance.


Overnight, the U.S. Treasury market was influenced by dovish comments from key Federal Reserve officials ahead of the December FOMC meeting. Christopher Waller, a leading candidate for the next Fed Chair, told Fox Business that his main concern is the labor market, stating, “I support a rate cut at the next meeting.” He added that most private and anecdotal data show little change, diagnosing the labor market as weak and continuing to weaken.


San Francisco Fed President Mary Daly also raised the possibility of a sharp deterioration in the labor market in an interview with foreign media, expressing support for a rate cut next month. Daly, who does not have a vote at this year’s FOMC, had previously indicated an open stance on further rate cuts. Her comments, along with those from New York Fed President John Williams and Governor Waller ahead of the Fed’s blackout period starting on the 29th (local time), sent a strong signal to markets.


According to the CME FedWatch Tool, the federal funds futures market now prices in an over 81% probability of a December rate cut, a sharp reversal from a week ago when a hold was more likely.


As a result, U.S. Treasury yields fell for a third straight session. The two-year yield dropped 1.1 basis points to 3.4990%, while the 10-year yield fell 3.8 basis points to 4.0270%. Notably, the two-year yield closed below 3.5% for the first time since October 27 (3.4950%).


Meanwhile, U.S. President Donald Trump and Chinese President Xi Jinping held a phone call overnight. President Trump said on Truth Social that they discussed a range of topics, including the Ukraine-Russia situation, fentanyl, soybeans, and other agricultural products. Xinhua News Agency reported that the two leaders also discussed the Taiwan issue. The tone between the U.S. and China remains broadly positive.


This morning, a 500 billion won ($380 million) auction of 20-year Korean Treasury bonds will be held.


(Market Team, Economic News Department)


jhson1@yna.co.kr


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