Domestic growth indicators are rising, and government bond yields are also continuously increasing

This year’s first-quarter domestic economic indicators significantly exceeded expectations. As a result of this confirmation, Korean government bond yields continued to rise across the board for the second consecutive day. With signals of stronger-than-expected economic performance emerging, the market generally believes that the Bank of Korea (the central bank) will be more inclined to observe price and growth trends rather than rush to cut the benchmark interest rate. This expectation led to bond prices falling and yields rising.

On that day, in the Seoul bond market, the three-year government bond yield rose 3.8 basis points (1 basis point = 0.01 percentage points) from the previous trading day, closing at an annualized 3.496%. The two-year yield increased 4.8 basis points, closing at an annualized 3.387%; the five-year yield rose 3.1 basis points, closing at an annualized 3.683%. Longer-term maturities also gained: the ten-year yield increased 2.6 basis points to an annualized 3.817%, the twenty-year yield rose 3.0 basis points to an annualized 3.755%, the thirty-year yield increased 2.7 basis points to an annualized 3.674%, and the fifty-year yield rose 2.6 basis points to an annualized 3.540%. The bond market structure, where rising yields lead to falling prices, indicates widespread selling pressure on bonds during the day.

The direct background for the yield increase was the preliminary data on actual GDP for the first quarter of 2026 released the previous day. Data from the Bank of Korea showed that the actual GDP grew 1.7% quarter-on-quarter in the first quarter of 2025. This figure was significantly higher than the forecast of 0.9% published by the bank in February, marking the highest quarterly growth rate since the third quarter of 2020 (2.2%) over the past five and a half years. The market believes that if economic growth exceeds expectations, monetary authorities may adopt a cautious stance on rate cuts aimed at stimulating the economy. Conversely, in some cases, they might even revisit the possibility of rate hikes, which could dampen bond investment sentiment.

From a supply and demand perspective, the soft tone has also been confirmed. On that day, foreign investors net sold 13,981 contracts of three-year government bond futures and 1,162 contracts of ten-year government bond futures, continuing three days of net selling since the 22nd. Government bond futures are a representative indicator reflecting market expectations of future bond yield directions. Continued foreign selling indicates that more participants in the short term are inclined to view yields as rising. Zhao Rongjiu, a researcher at Shinrong Securities, explained that the impact of the significantly higher-than-expected GDP growth rate persists. Although the results of major central bank meetings next week may influence Korean interest rates, it is currently necessary to wait and see until the Bank of Korea’s Monetary Policy Committee meeting in May.

In summary, the recent rise in government bond yields is not merely a one-day fluctuation but should be seen as the market readjusting its interpretation of domestic economic resilience and monetary policy paths. Going forward, the judgments of the Bank of Korea’s Monetary Policy Committee in May, the outcomes of major central bank meetings, and trends in prices and exchange rates are likely to jointly determine the direction of interest rates. If growth indicators continue to perform strongly, the bond market may further delay expectations of a rate cut to the benchmark interest rate.