BOK observes treasury bond gains in Korea as slightly excessive, Rhee says

BOK observes treasury bond gains in Korea as slightly excessive, Rhee says

BOK Observes Treasury Bond Gains in Korea as Slightly Excessive, Rhee Says

South Korea’s central bank has flagged recent gains in treasury bond yields as potentially excessive, with Governor Rhee Chang Yong emphasizing the need for caution amid evolving economic conditions. In remarks this month, Rhee noted that while the Bank of Korea (BOK) remains committed to an easing cycle due to a negative output gap, the magnitude and timing of future policy adjustments will depend on incoming data, including developments in bond markets.

Following Rhee’s comments, policy-sensitive 3-year bond yields rose 9.12 basis points to 2.93%, while 10-year yields climbed 6.79 basis points to 3.28%. The BOK governor attributed the upward pressure partly to market sensitivity to external factors, such as U.S. AI stock volatility and shifting trade dynamics, which have also weakened the Korean won to levels Rhee described as "misaligned" with economic fundamentals.

Rhee stressed that monetary policy alone cannot address financial stability risks, particularly in the housing market, where rapid price gains in Seoul have outpaced expectations. While the BOK has kept its key rate steady at 2.5% since October to mitigate such risks, Rhee reiterated the need for supply-side measures and long-term government interventions to cool the market.

The central bank’s cautious stance reflects broader uncertainties. Although South Korea’s economy grew 1.2% in Q3 2025—the fastest pace since Q1 2024— Rhee warned of vulnerabilities stemming from its export-dependent structure and global geopolitical tensions. Meanwhile, a recent trade agreement with the U.S. aims to reduce uncertainty but faces implementation challenges, including managing $20 billion annual foreign investment caps to avoid further won depreciation according to market analysis.

Looking ahead, Rhee indicated the BOK may revise its 2026 growth forecast upward if domestic demand strengthens, though current projections of 1.6% remain below the economy’s potential growth rate of 1.8%-2%. For now, the central bank’s data-dependent approach and focus on financial stability suggest a measured path, with bond markets likely to remain sensitive to policy signals and external shocks.