[Bond Market Morning]Yields Fall as Curve Flattens

(Seoul=Yonhap Infomax) Hye Rim Pi – South Korean government bond yields declined on the morning of the 25th, with longer-dated bonds falling more sharply than shorter maturities, resulting in a flatter yield curve.

According to the Seoul bond market, as of 11:06 AM KST, the yield on the three-year government bond stood at 2.890%, down 1.5 basis points from the previous session’s private sector assessment. The 10-year yield dropped 3.5 basis points to 3.255%.

Three-year Korea Treasury Bond (KTB) futures rose 7 ticks to 105.88. Foreign investors were net buyers of 3,493 contracts, while securities firms were net sellers of 2,162 contracts. Ten-year KTB futures climbed 34 ticks to 114.52, with foreign investors net buying 7,343 contracts and securities firms net selling 4,971 contracts. Thirty-year KTB futures advanced 1.06 points to 134.86, with 95 contracts traded.

Afternoon Outlook

Market participants are closely monitoring foreign investor flows. A bond dealer at a securities firm noted, “With limited bank bond issuance today, supply-side pressure is not significant. Unless foreign investors abruptly change direction in the afternoon, prices are likely to hold.”

Another dealer commented, “The market is thin, so foreign investor activity has a pronounced impact. Strength in ultra-long maturities is driving the 10-year sector, while buying interest emerges for the three-year bond when yields are above 2.90%.”

Intraday Developments

The three-year benchmark government bond (issue 25-4) opened at 2.903%, down 0.2 basis points from the previous session’s private sector assessment. The 10-year benchmark (issue 25-5) started at 3.255%, down 3.5 basis points.

Overnight, the U.S. Treasury two-year yield fell 1.1 basis points to 3.4990%, while the 10-year yield dropped 3.8 basis points to 4.0270%. The moves were influenced by dovish remarks from key Federal Reserve officials ahead of the December Federal Open Market Committee (FOMC) meeting.

Christopher Waller, a Fed Governor and potential candidate for the next Fed Chair, told Fox Business, “My main concern regarding our dual mandate (price stability and full employment) is the labor market. I support a rate cut at the next meeting.”

Korean government bond futures opened higher, reflecting the decline in U.S. yields. As foreign investors increased their net purchases of KTB futures, the 10-year contract at one point surged by more than half a point during the session. Strength in ultra-long maturities also supported the decline in 10-year yields.

The upcoming Bank of Korea Monetary Policy Board meeting, scheduled in two days, is seen as a factor limiting gains in the short end. A 500 billion won ($385 million) auction of 20-year government bonds is set for today.

Foreign investors were net buyers of 3,496 contracts in three-year KTB futures and 7,342 contracts in 10-year KTB futures. In Asian trading, U.S. two-year and 10-year Treasury yields rose by 0.10 and 1.50 basis points, respectively.

Trading volume in three-year KTB futures reached approximately 80,000 contracts, with open interest increasing by 2,627 contracts. Ten-year KTB futures saw about 46,000 contracts traded, while open interest declined by 1,227 contracts.

phl@yna.co.kr

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