U.S. Federal Open Market Committee (FOMC) Influence on Korean Treasury Bond Yields

Recent analysis indicates that the U.S. Federal Open Market Committee (FOMC) has a more significant short-term impact on Korean treasury bond yields compared to domestic political issues, especially amid high political instability.

According to Korea Investment & Securities, treasury bond yields are more influenced by the U.S. FOMC in the short term than by domestic political issues. The FOMC, a committee under the U.S. Federal Reserve, determines the benchmark interest rate.

Yoo Young-sang, a researcher at Korea Investment & Securities, noted, "The prolonged state of political instability can only act as a long-term downward pressure on bond yields." He added, "Although the swift response of financial authorities is limiting the extent of the decline in treasury bond yields, the reactions in the exchange rate and stock market indicate that political instability is negatively affecting the domestic asset market."

Yoo predicted, "The treasury bond market will be more influenced in the short term by the direction of the FOMC meeting next week than by domestic political issues." He further explained, "The results of the U.S. employment data released last Friday support a rate cut in the December FOMC, and the market is highly reflecting the possibility of a December FOMC rate cut."

Barring any major variables, treasury bond yields are expected to show a stable trend. Yoo forecasted, "Unless the U.S. November Consumer Price Index (CPI) to be released this week significantly exceeds market expectations, the treasury bond market will reflect expectations of a rate cut in next week’s FOMC, showing a firm trend despite ongoing political uncertainty."