SEOUL: South Korea\u2019s bond is set to extend this year\u2019s rout as a semiconductor boom supercharges the nation\u2019s economic growth and adds to inflationary pressures, analysts say.<\/p>\n
Citigroup Inc now expects four quarter-point interest-rate increases over the next year versus two previously.<\/p>\n
iM Securities sees the three-year yield rising to 4%, the highest since November 2023, while Shinyoung Securities projects it to approach 3.8%.<\/p>\n
The bond selloff suggests investors no longer see current interest-rate levels as restrictive enough to cool an economy firing on multiple cylinders.<\/p>\n
The artificial intelligence (AI)-driven investment boom in chips is also sparking inflationary concerns in Taiwan and Japan.<\/p>\n
The rise in South Korea\u2019s three-year yield by more than 86 basis points (bps) from this year\u2019s low also mirrors a broader global move, as markets increasingly bake in persistent inflation and the prospect of higher-for-longer rates.<\/p>\n
\u201cMarkets are increasingly building a narrative that South Korea\u2019s growth next year could exceed the mid-2% range,\u201d said Myoungsil Kim, a fixed-income analyst at iM Securities, compared with the Bank of Korea\u2019s (BoK) previous 1.8% forecast.<\/p>\n
She added that such a move would pose a key risk to the bond market.\u00a0<\/p>\n
The policy-sensitive three-year yield rose as high as 3.77% this week, the highest since November 2023.<\/p>\n
Traders are pricing in almost 120 bps of tightening from the Bank of Korea over the next year in won interest-rate swaps, according to Bloomberg-compiled data.<\/p>\n
That surge has brought the market to a critical juncture ahead of the BoK\u2019s May 28 policy decision.<\/p>\n
Yields have also climbed on a sharp shift in policy expectations following the appointment of Governor Shin Hyun Song.<\/p>\n
Shin is viewed as hawkish after emphasising upside inflation risks over growth concerns, signalling a greater willingness to keep rates higher to contain price pressures.<\/p>\n
The BoK held its benchmark rate steady at 2.5% at its April meeting.<\/p>\n
The spread between the three-year yield and the benchmark interest rate has widened to more than 120 bps, the largest gap since the pandemic-era rate-rise cycle in 2022.<\/p>\n
Some strategists, however, argue yields may be overstretched.<\/p>\n
Goldman Sachs Group Inc strategists, including Irene Choi say market pricing of four or more hikes is excessive and expect yields to stabilise if geopolitical tensions ease.\u00a0<\/p>\n
Still, the rise in yields may reflect more than an overshoot in rate expectations.<\/p>\n
Analysts point to a semiconductor upcycle and expanding AI investment among factors reshaping South Korea\u2019s growth outlook and reinforcing a higher-rate environment.<\/p>\n
\u201cAn exponential increase in AI investment spending is driving an innovation shock to both nominal and real exports in South Korea,\u201d Bumki Son, an economist at Barclays Plc wrote in a note last Thursday.<\/p>\n
He compared the growth sparked by the semiconductor and AI boom \u201cto discovering new oil reserves\u201d in terms of boosting gross domestic product (GDP).<\/p>\n
Stronger semiconductor shipments are boosting corporate tax receipts, with Citigroup estimating about 20 trillion won (US$13.5bil) in additional revenue in the second half of financial year 2026 and 120 trillion won in 2027.<\/p>\n
That supports higher government spending, adding further upside risks to growth and putting a floor under bond yields.<\/p>\n
Citigroup last week raised its 2026 and 2027 GDP growth forecasts to 3.0% and 2.8% from 2.9% and 2.4%, respectively, while Barclays expects growth of about 2.6% this year, above the BoK\u2019s February forecast of 2.0%.<\/p>\n
\u201cIt\u2019s still too early to call a peak,\u201d in bond yields, said Cho Yong-gu, a fixed-income analyst at Shinyoung Securities.<\/p>\n
\u201cSecond-round effects from higher oil prices, strong growth and the likelihood of additional fiscal spending from tax windfalls are all negative for the bond market.\u201d \u2014 Bloomberg<\/p>\n","protected":false},"excerpt":{"rendered":"SEOUL: South Korea\u2019s bond is set to extend this year\u2019s rout as a semiconductor boom supercharges the nation\u2019s…\n","protected":false},"author":2,"featured_media":21008,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[456],"tags":[1137,845,846,7385,451,642,33,14680],"class_list":{"0":"post-21007","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-bank-of-korea","8":"tag-ai","9":"tag-bank-of-korea","10":"tag-bok","11":"tag-bond","12":"tag-markets","13":"tag-semiconductor","14":"tag-south-korea","15":"tag-yield"},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/21007","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/comments?post=21007"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/21007\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media\/21008"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media?parent=21007"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/categories?post=21007"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/tags?post=21007"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}