U.S. Inflation Dominates Rate Synchronization with South Korea

The Bank of Korea (BOK) has released a report analyzing the synchronization of long-term interest rates between South Korea and the United States. The study found that U.S. inflation is the single biggest driver behind this synchronization, contributing approximately 41%.

The BOK analyzed daily changes in 10-year government bond yields from 2000 to 2025 and discovered that U.S. inflation has a significant impact on Korean long-term rates through the policy channel. This means that external shocks feed into expectations for the central bank's current and future policy rates, moving the expectations component of long-term yields.

The report also found that synchronization was pronounced when the Federal Reserve carried out unconventional monetary policy such as quantitative easing. When this occurred, both short- and long-term Korean interest rates fell around major announcement dates.