South Korea’s 10-year government bond yield declined to around 4.25% in mid-October, its lowest level in six weeks, as the market rebounded following new government measures aimed at curbing volatility. Authorities signaled a readiness to intervene and reduced planned government bond issuance for October by 5 trillion won ($3.74 billion) to help stem the rise in yields.
Even so, upward pressure on yields remains, driven by persistent inflation concerns amid elevated oil prices and a broader global bond selloff. Stronger-than-expected economic growth, underpinned by a boom in the semiconductor sector, is also contributing to price pressures.
In derivatives markets, won interest rate swaps are pricing in roughly a 70% probability of a cumulative 50-basis-point increase in the Bank of Korea’s policy rate over the next six months, following consecutive hikes that brought the benchmark rate to 3%. Market participants are now focused on the October 22 policy meeting, where the central bank is widely expected to leave rates unchanged before potentially resuming its tightening cycle in November.
