Korean government securities firm in trouble for betting on interest rate cut with possible 7% government bond yield
When the possibility of a government bond yield of 7% appeared in foreign media, the Korean government and securities companies that had bet on ‘interest rate cuts after the middle of the year’ found themselves in an awkward position and set the target of criticism as ‘young people continue to invest in real estate despite high interest rates’.
Reuters said, “Analysts do not rule out the possibility that the 10-year government bond yield will rise from the current 5.4% to 7%,” and “Germany’s 10-year government bond yield is 2.9% and could soon reach 3%, which could soon reach 3% by 2022.” “Considering that the rate of return at the beginning of the year was less than 0%, this is another milestone,” it was reported on the 3rd.
In the U.S. Treasury market, the yield on 10-year Treasury bonds is at its highest in 16 years, in Germany it is at the highest since the Eurozone debt crisis in 2011, and in Japan, where the official interest rate is still below 0%, bond yields have returned to 2013 levels.
The reason why global bond yields are rising is because the prevailing view in the market is that interest rates are being maintained at increasingly higher rates.
Markets are pushing back against central bank interest rate cut bets as inflation excluding food and energy prices rises and the U.S. economy recovers.
Most bond market investors bet that bond yields would fall, and this result made bonds more sensitive to movements in the opposite direction when interest rates rose.
Reuters reported that traders are already expecting the Federal Reserve to raise interest rates from the current 4.7%-5.25% to 5.50%, which is a huge gap from the forecast of a 3% decline expected at the end of April.
Moreover, credit rating agency Fitch downgraded the U.S. credit rating in August due to the high level of deficit, and as concerns about the fiscal outlook grew, Italy, which is heavily in debt due to high interest rates and a sharp increase in debt interest, raised its deficit target last week. .
Due to the rise in U.S. Treasury yields, a stronger dollar has become the trend, which is increasing pressure on the Japanese yen and threatening the 150 yen per dollar level.
Long-term bond yields are rising as investors demand more compensation as the deficit increases, leading to more bond sales as central banks sell off massive holdings.
The focus of the crisis is a triangular wave of banks, large holders of government bonds at stake in unrealized losses, and the Silicon Valley bank that collapsed in March on loans to venture companies.
With the European economy deteriorating, bonds are getting better due to economic weakness, and most large central banks, including the Bank of Korea, prefer to send the wrong signal that interest rate increases are over, so Korea has already stimulated the real estate market as much as possible with economic stimulus. did.
Mahmood Pradhan, head of macro markets at Amundi Investment Research Institute, said of the central bank's bond sale: "It will have a strong impact on banks that hold long-term government bonds. The longer it goes on, the more sectors it will hit. ", he told Reuters.
Commenting on the dollar's strength, Andrea Kiguel, head of FX and EM macro strategy for the Americas at Barclays, said, "Along with the rise in oil prices, the strengthening of the longer-term higher narrative was a key driver of the broader US dollar strength. The pace of this movement was driven by factors such as weakening regional currencies; “This led to a violent sell-off in local interest rates and widening credit spreads in emerging markets,” he told Reuters.
The decline in stocks began to take money away from the lively market as bond yields soared.
On the 4th, the Korean media suddenly began criticizing the Youngkul group for continuing to invest in real estate despite the reality of rising interest rates.