Treasury yields soar amid headwinds from Middle East tensions and the FOMC rate freeze

On March 19, government bond yields generally rose. This was driven by geopolitical tensions in the Middle East and the market reaction to the Federal Open Market Committee (FOMC)’s decision to keep interest rates unchanged but signal tightening measures.

In the Seoul bond market, the 3-year government bond yield increased by 6.8 basis points to close at an annualized rate of 3.329%; the 10-year government bond yield rose by 8.7 basis points to 3.693%. Yields for other maturities also trended upward, shaking the appeal of government bonds as a stable investment option.

Specifically, the conflict between Israel and Iran caused international oil prices to surge past $110 per barrel, and the won/dollar exchange rate broke through 1,500 won for the first time since the financial crisis, increasing the overall economic burden. Net foreign selling of government bond futures also contributed to the rise in yields.

Meanwhile, Federal Reserve Chair Jerome Powell mentioned the possibility of future rate hikes, increasing market volatility. U.S. Treasury yields and Korean government bond yields may experience greater fluctuations ahead, especially with the upcoming inclusion of Korean bonds in the World Government Bond Index (WGBI), warranting close attention.

In this context, whether the upward trend in government bond yields will continue or shift to a downward trend after a temporary adjustment remains to be seen. Future changes may depend on international and domestic economic variables.