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S. Korea to monitor market volatility amid widening bond yield spreads

Economy 09:11 January 19, 2021

SEOUL, Jan. 19 (Yonhap) -- South Korea will closely monitor a potential increase in volatility of the financial markets as the yield spread between short and long-term state bonds is increasing, the vice finance minister said Tuesday.

First Vice Finance Minister Kim Yong-beom also said rising U.S. Treasury yields are serving as the main factor that has recently driven the dollar higher against major currencies.

Yields on 10-year government bonds recently jumped on anticipation for an economic recovery and expected bond sales to finance massive fiscal spending, thereby widening the yield spread with 3-year Treasury bonds.

The yield spread between 3-year and 10-year government bonds came to 76.9 basis points on Jan. 5, the widest gap since June 2015.

The trend is in line with a rise in U.S. Treasury yields. Expectation for a massive economic stimulus package under the incoming Biden administration pushed the yield on 10-year notes to above 1 percent.

"As yields on government bonds with longer maturities are rising, the yield spread with shorter-term Treasurys is also widening," Kim said at a meeting on the macroeconomy and financial markets.

"The government will spare no efforts to strengthen financial stability by monitoring economic situations at home and abroad and the movement of bond yields, and keeping a close tab on a potential rise in market volatility," Kim said.

South Korea plans to sell state bonds totaling 176.4 trillion won (US$160 billion) this year as it seeks to increase fiscal spending to cope with the fallout of the new coronavirus outbreak.

First Vice Finance Minister Kim Yong-beom speaks at a meeting on the macroeconomy and financial markets at the Korea Federation of Banks headquarters on Jan. 19, 2021. (Yonhap)


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