Global long-term government bond yields are surging on inflation driven by higher oil prices and concerns over the fiscal health of major economies, adding to upward pressure on South Korean market interest rates. Falling bond prices — and therefore rising yields — in the United States and Japan, markets investors favor most, are spilling over into Korea indirectly. Market watchers warn that if the Bank of Korea raises its policy rate on top of that, low- and middle-income households and self-employed business owners will be hit first.
Three-year Korean treasury bonds traded at 3.93% as of the morning of the 2nd, up 0.052 percentage point from the previous day, according to financial industry sources. Ten-year treasuries, a longer-dated benchmark, changed hands at around 4.41%.
The problem is that global market conditions offer little relief. The U.S. 10-year Treasury yield hovered around 4.8% the same day, its highest since January last year, just before President Donald Trump returned to office. The 30-year yield, used as a benchmark for mortgages, climbed as high as 5.27%, the highest since June 2007.
In Japan, the 10-year government bond yield broke above 3% for the first time in 30 years, the highest since October 1996. Britain's 30-year yield rose as high as 5.91% at one point, its highest since 1998. Germany's 10-year yield also climbed to 3.33%.
Analysts see the chain running from a spike in government bond yields in the United States, Japan and other major economies, to upward pressure on Korean treasury yields, to higher lending rates. It is an external shock. With the Bank of Korea seen as likely to raise rates one or two more times over concerns about home prices and inflation, some analysts expect mortgage rates, now topping 7%, to reach 8% quickly.
Mortgage rates alone rose about 0.5 percentage point between May last year, when the central bank held its policy rate steady, and July this year, without any domestic driver. If instability in major economies' bond yields persists, the same trend could continue in the second half. Household debt stood at 2,019.8 trillion won as of the end of June. "In Korea, the United States, Japan and other major economies alike, long-term bond yields are rising on inflation concerns and increased government bond issuance," said Kim Jung-sik, professor emeritus of economics at Yonsei University. "This affects asset prices such as real estate and stocks, and can show up as a heavier interest burden on households."
