U.S. Treasury Yield Surge Sparks Concerns for South Korea's Economy

Experts warn that rising U.S. long-term Treasury yields could have a ripple effect on South Korea's economy, potentially leading to higher exchange rates and foreign capital outflows.

The yield on 10-year U.S. Treasuries has been hovering around the 5% mark, considered a psychological resistance level. The surge in yields is attributed to rising inflation fueled by soaring international oil prices, increased bond issuance by major AI companies, the weakening safe-haven status of U.S. Treasuries, and reduced communication from the U.S. Federal Reserve.

Kang Hyeonju, a senior research fellow at the Korea Capital Market Institute, notes that rising Korean Treasury yields could lead to heavier burdens on the private sector due to increased financing costs for banks and corporations. He also projects a weakening of the South Korean won, citing recent trends in the U.S. Treasury market.

Kang warns that growth stocks relying heavily on future cash flows are vulnerable to the impact of rising discount rates, which could act as a burden on the domestic stock market. He cites an example where a sharp spike in U.S. long-term Treasury yields caused the Kospi to plummet by 5.8%, triggering a sell-side sidecar.