"What About 'All-In' and Borrowed Investing?" Bank Bond Yields Top 3% After BOK Hints at Rate Hike

\r\n[Financial News] Bank bond yields climbed sharply after the Bank of Korea (BOK) signaled a rate hike within this year. Because bank bond yields serve as a benchmark when banks set lending rates, borrowers who invested with borrowed money or took on heavy debt are expected to face a larger interest burden. 
\r\nAccording to the Korea Financial Investment Association (KOFIA) on the 29th, the yield on six-month bank bonds stood at 3.001% on the 28th. It marked the first time in one year and four months that the yield had entered the 3% range, after steadily rising from around 2.7% at the beginning of the year. The five-year bank bond yield reached 4.280%, the highest level in two years and five months since Nov. 15, 2023, when it stood at 4.323%. The six-month yield is used as a benchmark for variable-rate mortgage loans, while the five-year yield is used for fixed-rate five-year mortgages. As bank bond yields rise, consumer borrowing costs also increase.
As concerns over global inflation intensified following the Israel-U.S. attacks on Iran, and as analysis gained traction that the Federal Reserve (Fed) could raise rates, the BOK also hinted at a rate hike. Market rates have been rising quickly since the central bank signaled a possible policy shift.
\r\nWhen inflation and interest rates rise, bond prices fall and bond yields increase.
\r\nA banking industry official explained, "Even the expectation of a rate hike can push yields higher as bond values fall," adding, "If funding costs rise, it is only natural for loan rates to go up."
Earlier, Shin Hyun-song, Governor of the Bank of Korea, said at his first Monetary Policy Board meeting of his term, "There is a persuasive case for a rate hike," and added, "We will manage various factors through a rate increase."
Some analysts, however, say expectations for a rate hike have already been largely reflected in loan rates, so actual borrowing costs may not rise sharply.
\r\nAnother banking industry official said, "Rate hike expectations began to emerge after the Middle East crisis, and we have already been factoring those risks into rates," adding, "Even if a BOK rate hike is imminent, loan rates are unlikely to surge as much as expected."
\r\nMeanwhile, balances of credit line loans, or overdraft accounts, at the five major banks are on the rise. As of the 21st, the combined balance of personal overdraft accounts at KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank and Nonghyup Bank stood at 41.2822 trillion won, up about 1.5 trillion won from the previous month. The balance, which was 39.738 trillion won at the end of January and 39.7877 trillion won at the end of March, dipped slightly at the end of last month before rising by 1.4945 trillion won in just three weeks. A banking industry official said that although overdraft loans carry higher interest rates than collateralized loans, many individual investors judged that expected returns from stock investments were higher than borrowing costs amid a booming stock market.
\r\n
\r\n
\r\n
\r\n
mj@fnnews.com Park Moon-soo Reporter