The US-Iran conflict has led to increased tensions in the Middle East… South Korean government bond yields rise

The Middle East tensions triggered by the U.S. attack on Iran are causing significant disruptions to global financial markets. The bond market is no exception, with South Korea’s government bond yields rising. This has made the traditionally stable investment channel of bonds become more uncertain.

The volatility in the bond market is less about a preference for safe assets and more influenced by soaring oil prices and inflation expectations. Inflation directly impacts bonds, which are fixed-rate assets, leading to market weakness. Since about 70% of South Korea’s oil imports come from the Middle East, the potential blockade of the Strait of Hormuz could further drive up prices and destabilize the bond market.

The Bank of Korea is closely monitoring the sharp increases in exchange rates and interest rates caused by the Middle East situation and plans to work with the government to implement market stabilization measures if necessary. Following the incident, authorities immediately issued verbal intervention signals to the bond market, but after a brief rally, the market turned downward. This may be due to short-term market sentiment leaning in one direction.

Experts are concerned about the excessive rise in bond yields. However, they also note that ongoing market stabilization messages from the Bank of Korea and the Ministry of Finance could help ease the upward trend in interest rates. Additionally, the inclusion of South Korea’s government bonds in the global sovereign bond index next month is expected to be a positive factor, attracting foreign capital inflows and alleviating supply and demand pressures.

Currently, the market is closely watching how long the Middle East tensions will last. Some analysts believe that if the situation becomes prolonged, concerns about disruptions to global oil supplies and rising interest rates will intensify. These factors are expected to play a key role in shaping future bond market developments.