The Korea-U.S. bond yield spread is approaching 200 basis points, adding insult to injury for the Korean won
The yield on South Korean government bonds relative to U.S. government bonds has fallen to a historical low, putting greater pressure on the Korean won. The current 10-year government bond yield spread has widened to about 190 basis points, with analysts expecting it to exceed 200 basis points. Since mid-last year, due to economic downturns, South Korean bond yields have continued to decline, particularly accelerating after the central bank cut interest rates in November last year. The Korean won has fallen more than 7% in the past three months, becoming the worst-performing currency in Asia
According to Zhitong Finance APP, the yield on South Korean government bonds relative to U.S. government bonds has fallen to a historical low, putting further pressure on the won, which has already been hit by a political crisis. The yield spread between South Korea's 10-year government bonds and U.S. 10-year government bonds widened to about 190 basis points this week, with some analysts believing that, considering potential dynamics, the spread will exceed 200 basis points. Since mid-last year, South Korean bond yields have been declining due to economic downturns, and the pace of decline accelerated after the Bank of Korea unexpectedly cut interest rates last November.
Korea-U.S. bond yield spread approaches 200 basis points
Kim Sungsoo, an analyst at Hanwha Investment & Securities, stated, "There are no particularly favorable factors for the South Korean economy in 2025, and the Bank of Korea has reiterated its flexibility, expecting to continue lowering interest rates. South Korean bond yields will also continue to decline."
The benchmark 10-year South Korean government bond yield closed at 2.79% on Tuesday, down from a high of 3.71% in April last year. On Tuesday, the U.S. 10-year government bond yield closed at 4.685%.
The widening discount on South Korean government bond yields is just one factor damaging the won. Following the martial law incident in early December last year, the won has fallen more than 7% over the past three months, making it the worst-performing currency in Asia.
Kong Dongrak, an analyst at Daishin Securities, stated that the yield gap between South Korea's 10-year government bonds and U.S. government bonds may continue to widen, reaching around 200 basis points. However, he noted that as U.S. government bond yields rise excessively, the spread should begin to narrow again at some point