(Aug 12): South Korea’s 30-year government bond yield climbed to a record, as elevated energy prices and weaker demand from life insurers intensified pressure on the debt market.
The yield reached 4.67% on Wednesday, the highest since the tenor was introduced in 2012.
The yield surged as oil prices climbed amid lingering Middle East tensions, reflecting Korea’s heavy reliance on imported energy. Also reducing demand for ultra-long bonds were a senior Bank of Korea official’s remarks that the central bank will likely need to raise interest rates further as semiconductor-induced strong growth feeds into underlying inflation.
Meanwhile, a key source of demand has faded. Korean life insurers have cut purchases of ultra-long bonds as regulatory changes reduced the urgency to extend asset duration.
“Demand has remained weak throughout this year,” said Cho Yong-gu, a fixed-income strategist at Shinyoung Securities Co. “Real-money buying from insurers, particularly life insurers, has been sluggish.”
The market’s outlook will partly depend on the global interest rate environment, as well as local debt supply, he added. “If the government cuts the share of ultra-long bonds to below 30% in next year’s issuance plan, demand for the tenor could revive.”
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