Treasury bond interest rates fall all at once due to the ripple effect of the U.S. blue wave (comprehensive)

On the 5th, interest rates on government bonds fell all at once, reflecting the ripple effect from the results of the U.S. midterm elections.

The Democratic Party's victory raised expectations for the end of the war between the United States and Iran and the subsequent calming of oil prices, serving as a catalyst for a decline in government bond interest rates.

In addition, concerns that the growth rate of artificial intelligence (AI) may slow down in the future have led to a decline in AI-related stock prices, including those of major domestic semiconductor companies, strengthening risk aversion.

As long-term interest rates fell sharply compared to short-term interest rates, which were blocked at the bottom due to the monetary tightening cycle, the Treasury bond yield curve became flat (bull-flattening). The interest rate gap between 10-year Treasury bonds and 3-year Treasury bonds is 21.8bp, the narrowest since April 2025.

On this day, in the Seoul bond market, the three-year maturity treasury bond interest rate closed at 3.669%, down 4.5bp (1bp = 0.01% point) from the previous trading day.

The 10-year interest rate fell 8.1bp to 3.887% per annum. The 5-year and 2-year notes fell 6.8bp and 3.2bp, respectively, closing at 3.769% and 3.655% per annum.

The 20-year yield fell 6.2bp to 3.985% per annum. 30-year and 50-year bonds fell 5.5bp and 5.5bp, respectively, recording 3.998% and 4.021% per year.

3-year Treasury bond futures closed at 103.69, up 14 ticks, and 10-year Treasury bond futures closed at 109.19, up 69 ticks. Foreigners bought 1,107 3-year futures contracts and 672 10-year futures contracts.

On this day, Treasury bond yields started in a downward trend, reflecting the decline in US Treasury yields following the results of the midterm elections. The U.S. 10-year Treasury yield fell 7.7bp last night, followed by a 4bp drop during Asian trading today.

International oil prices also fell 8.3% the previous day due to expectations of an end to the US-Iran war, and then fell further in the Asian market, trading around $88 per barrel.

The KOSPI index plummeted, led by Samsung Electronics and SK Hynix, due to concerns about U.S. data center regulations. Selling sidecars were activated on KOSPI and KOSDAQ in the morning and afternoon, respectively, and KOSPI fell to 5,268.33 during the day, falling to the lowest level since early April.

A bond manager at a securities firm said, "Stocks and bonds are being affected by the results of the U.S. midterm elections. As stock prices fell sharply during the day, bonds also seem to be affected by the resulting risk aversion," and added, "As short-term bonds are at a level that reflects the final base interest rate, they are not easily strong and are showing strength centered around long-term bonds."

There was also an opinion that the Bank of Korea's final base interest rate forecast may be lowered as the recent stock market slump continues.

Lim Jae-gyun, a researcher at KB Securities, predicted, “The upward adjustment phase of the final base interest rate has come to an end as the Governor of the Bank of Korea showed a somewhat lenient attitude at the Monetary Policy Committee meeting last October.” He added, “Rather, the sluggish stock market has raised concerns about negative effects, and the possibility that the final base interest rate forecast will be lowered will begin to be reflected.”

He continued, “If the forecast is adjusted downward, the burden on the level of the 3-year Treasury interest rate will also be eased.”