S. Korea to ‘flexibly’ intervene in bond market if necessary: vice minister

Nodding toward the latest global market jitters caused by a sudden spike in US bond yields, South Korea’s vice finance minister vowed Tuesday to “flexibly intervene” if market volatility increases.

“Recently a dampened investor sentiment and increased volatility have been observed in the Treasury bond market,” Vice Finance Minister Kim Yong-beom said in a macroeconomics meeting.

“We will make our best effort to stabilize the market, including making an adjustment to the issuance of Treasury bonds,” he added.

Benchmark 10-year US Treasury yields jumped over 1.7 percent last week, marking a 14-month high, riding on hopes of an economic rebound from the woes of the COVID-19 pandemic.

The yield on 10-year Korean Treasury has recently surpassed 2 percent for the first time since March 2019, as well, affected by the rise in US bond yields.

Kim also cited the US Federal Reserve’s decision last week not to extend a temporary pandemic regulatory break, which exempted Treasuries and central bank deposits from the “supplementary leverage ratio,” as a key catalyst behind the latest bond market volatility.

“Defying market expectations, the US Fed has decided not to extend its supplementary leverage ratio break, which caused the 10-year US Treasury bond to break the psychological barrier of an annual 1.75 percent yield and prompted other volatilities,” Kim explained.

Other risks include fresh lockdowns in Europe, high tension between the US and China and signs of inflation in several emerging economies, according to Kim.

The Bank of Korea earlier this month purchased 2 trillion won of government bonds from the market in a bid to stabilize the market.

Government officials here have been expressing concerns of the increased volatility in the bond and stock markets since last month.

By Jung Min-kyung (mkjung@heraldcorp.com)