South Korea’s 10-year government bond yield climbed to 3.74%, a one-month high, amid growing worries about renewed inflationary pressures stemming from escalating tensions in the Middle East. The Bank of Korea warned on Friday that the resulting surge in oil prices could intensify cost pressures in March, after data showed that February inflation was slightly below market expectations.
In response, traders have increased the probability they assign to further rate hikes, though they still anticipate only gradual policy tightening. Some analysts, however, argue that the central bank is unlikely to raise rates solely in reaction to higher-than-expected oil prices.
Investors are now awaiting the release of fourth-quarter GDP data later this week for additional insight into the economy’s underlying momentum and the likely trajectory of interest rates. At the same time, upward pressure on yields may be tempered by anticipated foreign inflows tied to South Korea’s planned inclusion in an FTSE Russell index in April.
