[Bond Market Closing]Yields Fall as Market Remains Cautious Ahead of Monetary Policy Meeting—Early Gains Fade

(Seoul=Yonhap Infomax) Jee Hyun Son – South Korean government bond yields declined on the 25th, with the market displaying an early rally that faded later in the session amid heightened caution ahead of the November Monetary Policy Board meeting, now just two days away.

According to the Seoul bond market, the yield on the benchmark three-year government bond closed at 2.902%, down 0.2 basis points from the previous session. The 10-year government bond yield ended at 3.264%, a decrease of 2.5 basis points. Three-year KTB futures rose 2 ticks to 105.83, with foreign investors net buying 6,120 contracts and banks net selling 3,145 contracts. Ten-year KTB futures gained 25 ticks to 114.43, as foreigners purchased 7,482 contracts and securities firms sold 3,519 contracts. The 30-year KTB futures advanced 0.80 points to 134.60, with 192 contracts traded.

Market Outlook

Market participants expect a continued wait-and-see approach ahead of the November Monetary Policy Board meeting. A bond dealer at a major bank commented, "This week, trading has been heavily influenced by foreign investor flows. However, the pattern has been largely insignificant, with strength one day followed by weakness the next." The dealer added, "After confirming the policy stance at the upcoming meeting, we expect the market to once again track global factors and external interest rates toward year-end and into the new year."

A bond dealer at a securities firm noted, "Depending on the stance of the November meeting, it would not be surprising to see yields move up or down by around 20 basis points from current levels."

Intraday Developments

Government bond yields opened lower, with the three-year benchmark issue (25-4) starting at 2.903%, down 0.2 basis points from the previous day's private sector evaluation. The 10-year benchmark issue (25-5) opened at 3.255%, down 3.5 basis points. Overnight, the US 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 market was influenced by dovish comments from key Federal Reserve officials ahead of the December Federal Open Market Committee (FOMC) meeting. Christopher Waller, a leading 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," adding, "I support a rate cut at the next meeting."

Reflecting this, KTB futures extended gains, with foreign investors increasing their net purchases. At one point, 10-year KTB futures surged by more than half a point during the session. However, as caution ahead of the November Monetary Policy Board meeting intensified, the rally lost steam, with gains halved from morning levels.

In the afternoon, the Democratic Party announced plans to propose a special law on US investment on the 26th. This measure aims to implement the memorandum of understanding (MOU) reached through Korea-US tariff negotiations, retroactively applying tariff reductions on automobiles and parts from November 1.

After the market closed, the Ministry of Economy and Finance announced that Deputy Prime Minister and Minister Choo Kyung-ho will hold an emergency press briefing on the 26th, expected to address recent developments in the foreign exchange market and deliver messages related to the won-dollar exchange rate.

The USD/KRW exchange rate closed at 1,472.4 won, marking its first decline in seven sessions. Near the close, US Treasury yields in Asian trading rose by about 1 basis point. Three-year KTB futures saw 172,482 contracts traded, with open interest down by 398 contracts. Ten-year KTB futures recorded 93,527 contracts traded, with open interest down by 555 contracts.

Korea Financial Investment Association Final Quotation Yields (as of 25th)

jhson1@yna.co.kr

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