Treasury Bond Yields Fall Amid Lower Exchange Rates and Japanese Bond Yields; 3-Year Yield at 3.768%

Treasury bond yields fell across the board today, driven by a weaker dollar and a sharp drop in Japanese government bond yields.

In the Seoul bond market today (July 10), the yield on the benchmark 3-year Treasury bond closed at 3.768% per annum, down 1.0 basis point (bp) from the previous trading day (1bp=0.01% point).

The 10-year bond yield fell 2.0bp to 4.230% per annum.

The 5-year and 2-year yields closed at 4.008% and 3.641% per annum, respectively, down 0.8bp and 1.5bp.

The 20-year yield dropped 1.8bp to 4.413% per annum.

The 30-year and 50-year yields fell 2.1bp and 1.9bp, respectively, to record 4.438% and 4.332% per annum.

Foreign investors net sold 9,190 contracts of 3-year Treasury bond futures and net bought 2,044 contracts of 10-year Treasury bond futures.

One of the primary factors behind today's decline in Treasury yields was the won-dollar exchange rate.

In the Seoul foreign exchange market, the won-dollar exchange rate closed at 1,501.4 won as of 3:30 p.m. (the standard closing time for daytime trading), down 4.7 won from the previous day.

The won-dollar exchange rate opened at 1,506.1 won, up 7.6 won due to rising tensions in the Middle East, but shifted direction to fall as low as 1,499.3 won after 3:00 p.m.

With this, the won-dollar exchange rate has remained below 1,500 won in intraday lows for three consecutive days.

The sharp drop in Japanese government bond yields, following comments from a Japanese government official, also exerted downward pressure.

During a regular press conference today, Japanese Minister of Finance Satsuki Katayama stated, "We will ensure that the public can directly enjoy the benefits of Japan's economic growth," adding, "Our top priority is to encourage households and pension funds, including the Government Pension Investment Fund (GPIF), to expand their investments in Japanese financial assets, and we will pursue policies to support this."

This remark raised expectations for capital inflows from the GPIF, strengthening Japanese government bonds and the yen, and the impact spread to the domestic bond market.

Ahn Ye-ha, a researcher at Kiwoom Securities, analyzed, "The decline in the won-dollar exchange rate during the day served as a factor for the drop in Treasury bond yields," adding, "Externally, the decline in Japanese government bond yields also had an impact."

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