(Bloomberg) -- South Korea’s bond yields have been sinking to a succession of record lows versus those on US Treasuries, piling further pressure on the won already battered by a political crisis.
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The nation’s 10-year yield discount swelled to around 190 basis points this week, with some predicting the spread will surpass 200 basis points given the underlying dynamics. Local yields have been sliding since the middle of last year due to the sluggish economy, and the drop quickened in November after the central bank unexpectedly cut interest rates.
“There are no specially favorable factors for the Korean economy in 2025, and the Bank of Korea, which has reiterated its flexibility, is expected to continue lowering interest rates,” Kim Sungsoo, an analyst at Hanhwa Investment & Securities Co. in Seoul, wrote in a research note. “Local yields will also continue to decline.”
Korea’s benchmark 10-year yield closed at 2.79% on Tuesday, down from last year’s high of 3.71% set in April. The US 10-year yield ended Tuesday at 4.685%.
The widening discount on local bond yields is just one factor hurting the won. The local currency has slumped more than 7% in the past three months, the worst-performing Asian currency, as President Yoon Suk Yeol imposed a short-lived martial law declaration at the start of December and was then impeached by parliament.
Korea’s 10-year yield deficit versus Treasuries may keep widening and reach around 200 basis points, said Kong Dongrak, an analyst at Daishin Securities Co. in Seoul. Still at some point the spread should start to narrow again as the rise in US yields is excessive, he said.
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