South Korean 10-year bond yields end highest in 12-month following weakness in global debt market

The South Korean 10-year bond yields closed highest in 12-month on Thursday following a heavy sell-off in global Treasury market.

The 10-year bond yield, which moves inversely to its price, rose 4 basis points to 2.17 percent (highest since December 2015), the yield on 20-year note jumped 3 basis points to 2.23 percent and short-term 3-year bonds yield also climbed nearly 3 basis points to 1.80 percent.

The Korean bonds have been closely following developments in the U.S. debt market. The United States benchmark 10-year Treasury yield jumped 4 basis points to 2.35 percent.

Also, a heavy sell-off in government bonds was supported by rising expectations that the Federal Reserve will increase interest rate in December. The Federal Reserve November meeting minutes indicated that majority of the FOMC members are in favour of a December rate hike

Minutes from the 1 - 2 November FOMC meeting indicated that participants generally agreed that based on the relatively limited information received since the September FOMC meeting that the case for increasing the target range for the federal funds rate had continued to strengthen. Minutes indicated that labour market conditions had improved further and considered the firming in inflation and inflation compensation to be positive developments, consistent with continued progress toward the Committee's 2 percent inflation objective.

However, a number of participants expressed the view that some modest slack remained in the labour market or noted that readings on inflation compensation and inflation expectations remained low, alongside some participants who suggested that current conditions did not point to an immediate need to tighten policy or that some further evidence of continued progress toward the Committee's objectives would provide greater support for policy firming.

Nevertheless, most participants expressed a view that it could well become appropriate to raise the target range for the federal funds rate relatively soon as some participants noted that recent Committee communications were consistent with an increase in the target range for the federal funds rate in the near term or argued that to preserve credibility, such an increase should occur at the next meeting.

Meanwhile, The Korea Composite Stock Price Index (KOSPI) ended 0.84 percent lower at 1,971.26 points.