South Korean bond market participants focused on Bank of Korea Governor Shin Hyun-song's remarks during the parliamentary Finance and Economy Committee report on this day. The silent period begins on this day, limiting the likelihood of significant monetary policy information. International oil prices rebounded, creating downward pressure on bonds, while Federal Reserve minutes revealed a somewhat hawkish shift in US monetary policy outlook. The Fed minutes showed market participants pricing in nearly 50% probability of a rate hike at the second meeting in September when new dot plots will be released.
Brent Crude Approached $100 Per Barrel Last Month
When Brent crude spot prices approached $100 per barrel in early last month, the 3-year Korean Treasury Bond yield remained in the late 3.7% range. Market participants noted that if the US and Iran exchange attacks once or twice before tensions ease, the impact could be limited.
President Donald Trump revealed additional US airstrikes on Iran on this day, posting on his social media platform Truth Social: "This is retaliation for Iran's ship bombing yesterday. If this happens again, the situation will become much more serious." Iranian leadership's response to this statement remains a key factor.
Fed Minutes Showed Rate Hike Discussion
The Fed minutes released the previous day showed "a few" participants mentioned "there is a basis for raising the federal funds rate (FFR) target range considering these developments," though they supported keeping rates unchanged at this meeting. The bond market's reflection of nearly 50% probability for a September rate hike drew attention, as September is when new dot plots will be published.
Bank of Korea Governor Faces Parliamentary Report During Silent Period
The Bank of Korea faces a difficult situation with the parliamentary Finance and Economy Committee report scheduled on this day during the silent period. Answering lawmakers' questions becomes challenging when unable to provide responses suggesting future policy during this period.
Market participants' attention has narrowed to the terminal rate and pace of increases. Few market participants doubt a rate hike at next week's meeting. The Bank of Korea's view of South Korea's macroeconomic trajectory matters for the terminal rate assessment.
Inflation is widely expected to peak in the third quarter this year before declining. The impact of secondary effects from surging nominal GDP draws interest. The influx of funds is so overwhelming that questioning the direction is difficult. If the semiconductor industry's boom continues and massive funds from surging export prices pour into Korea, risks of pushing domestic inflation higher through wage increases and fiscal policy channels are significant.
Long-Term Rates Rose After US-Iran Ceasefire News
After news of a US-Iran ceasefire, domestic short and mid-term rates declined slightly, but long-term rates rose. Governor Shin is expected to limit his remarks overall, with attention on his comments regarding nominal GDP and the recent surge in stock investment. In an unfavorable external environment, sensitivity to downward pressure factors could be higher than to upward factors.
FAQ
Why did South Korean bond yields face pressure on this day?
South Korean bond yields faced downward pressure due to rebounding international oil prices and a hawkish shift in Federal Reserve policy outlook revealed in Fed minutes. The Fed minutes showed market participants pricing in nearly 50% probability of a rate hike in September.
What did Trump say about Iran airstrikes?
President Donald Trump announced additional US airstrikes on Iran, stating on Truth Social: "This is retaliation for Iran's ship bombing yesterday. If this happens again, the situation will become much more serious."
