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10-year bond yield rises to 4-year record

Part of the cause is growing interest in high-risk investments
Jan 31,2018
The country’s 10-year bond yield rose 0.04 basis points on Monday to close at 2.784, a level not seen since 2014, as investors have begun to prefer greater risk against a backdrop of mounting expectations that the global economy will improve.

The rates for other government bonds also rose with the 5-year notes reaching 2.593, edging up 0.033 points.

The trend follows a climb in the yield of the benchmark 10-year U.S. treasury, which reached a three-year high on Monday. As the prices of bonds move inversely to yields, the high rate means more bonds are being sold.

The slump is partly attributed to investors’ changing appetites towards stock investment, which commonly comes with strong signs of economic recovery.

“The stock market rally made stock investment more attractive,” said Kong Dong-rak, an analyst at Daishin Securities. “We’ve warned that the yields of government bonds will be on the rise with investors’ reduced appetites, but the recent increase appears to be excessive.”

Others said the main reason for the selling of bonds could be that central banks in major economies are moving to cut back on government bond purchases.

“The rising yields of the U.S. treasury bonds are triggering negative investment sentiment,” said Lee Mi-seon, an analyst at Hana Financial Investment. “A Governing Council member at the European Central Bank called for the end of quantitative easing in the region at the Davos Forum over the weekend.”

Lee added that Kuroda Haruhiko, Japan’s central bank head, declared that Japan is nearing the central bank’s inflation target. The Bank of Japan also announced earlier this month that it will wind back the buying of long-dated bonds.

The tapering off of state-issued bonds and rising inflation are considered signs of a healthy economy. And when the economy is in good shape, investors often ditch bonds to invest in riskier assets with higher returns.

Moon Hong-cheol, an analyst at DB Financial Investment, said that the weakened dollar is also driving the rise of bond yields, along with expectations for growing inflation.

“The weakening dollar typically contributes to economic growth in the eurozone and emerging economies,” Moon said. “That leads to higher inflation and more liquidity of dollars, which accelerates the weakening of the greenback.”


BY PARK EUN-JEE [park.eunjee@joongang.co.kr]