"Borrowers Losing Sleep: Could Mortgage Rates Rise Further?" Domestic Bank Bond Yields Hit Yearly High as U.S. Treasuries Break 5%

[Financial News] With the yield on 10-year United States Treasury securities (U.S. Treasuries) breaking above 5% per year, the yield on five-year bank bonds—a benchmark for domestic mortgage loan rates—also surpassed 4.6% for the first time this year. The yield has risen by more than 1 percentage point from the end of last year, and its sharp increase this month is likely to further raise the interest burden on borrowers looking to buy homes or refinance their loans.
Bank bonds are issued by banks to raise funds. When bank bond yields rise, banks must also pay more interest to borrow money.
According to the Korea Financial Investment Association on the 16th, the average yield on five-year bank bonds (unsecured, AAA-rated) stood at 4.655% per year as of the 15th, marking a high for the year. It rose by 0.078 percentage points in a single day from 4.577% the previous day.
Compared with 3.499% at the end of last year, the increase amounted to 1.156 percentage points. The bank bond yield, which stood at 4.051% at the end of March, rose to 4.241% at the end of June, 4.343% at the end of July and 4.382% at the end of August, despite periodic fluctuations. This month, it climbed 0.273 percentage points in just 15 days—seven times the 0.039-percentage-point increase recorded throughout the previous month.
The recent rise in bank bond yields is viewed as a consequence of higher long-term U.S. interest rates.
The yield on 10-year U.S. Treasuries, which serves as a benchmark for global interest rates, exceeded 5% during intraday trading on the 14th (local time) and briefly rose as high as 5.041% on the 15th. This was its highest level since July 2007. The increase came as high oil prices and inflation concerns raised the likelihood that the Federal Reserve System (Fed) would keep interest rates high or raise them further. When yields on U.S. Treasuries, a representative safe-haven asset, rise in this way, investors may demand higher returns on domestic bonds as well, increasing upward pressure on bank bond yields.
The rise in bank bond yields is also increasing pressure for mortgage rates to rise further. Borrowing rates could increase before the BOK decides on its policy rate, which is expected to add to the burden on borrowers preparing to purchase homes or refinance their loans.
A financial-sector official said, "The extent of any increase in mortgage rates will vary depending on each bank's rate policy. If banks lower their spreads or increase preferential rates to attract customers, they can absorb part of the rise in market rates." The official added, "However, if bank bond yields remain high because of high oil prices and concerns about monetary tightening in the United States, upward pressure on borrowing rates could continue."
[email protected] By Ye Byung-jung Reporter