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Rise in US treasury yields unlikely to prompt tantrum for stocks

Federal Reserve Chairman Jerome Powell testifies before the Senate Banking Committee hearing on
Federal Reserve Chairman Jerome Powell testifies before the Senate Banking Committee hearing on "The Quarterly CARES Act Report to Congress" on Capitol Hill in Washington, D.C., Dec. 1, 2020. Reuters-Yonhap

By Kim Yoo-chul

A recent steep rise in U.S. bond yields and a possible signal of U.S. inflation worries have some Wall Street investors wary that a repeat of the 2013 "taper tantrum" is in sight, possibly affecting the local stock market.

The benchmark U.S. 10-year Treasury note rose near 1.35 percent for the first time since February last year, meaning the yields have recovered to levels recorded just before the coronavirus struck. Bond yields move inversely to bond prices. A rise in bond yields could pose some threats to already high Wall Street and South Korean stocks.

On Tuesday, stock market analysts and economists said despite the rise in U.S. bond yields, it's less likely that a continued ascent will prove more problematic to the local stock market as Federal Reserve and other global central banks are expected to continue "monetary-easing" policies to keep the economic recovery momentum alive.

"We are closely monitoring the moves of U.S. treasury yields as the rises are mostly backed by expectations that visible progress in its vaccination program and additional fiscal stimulus will accelerate economic growth. But given ample liquidity in the market and growing needs to improve the economy, the Bank of Korea (BOK) is unlikely to change its accommodative monetary policy," said Kim Il-koo, chief economist at Hanwha Investment.

Kim added he doesn't expect the Federal Reserve to provide a signal to equity markets of the possibility of raising its benchmark rate as it would let consumer prices rise "for a while" so long as the vaccination efforts are successful.

"Rather than increasing the benchmark rate, the Federal Reserve will explore other available options to minimize the impact of the rising U.S. bond yields if it does so," another economist said on condition of anonymity.

The BOK will leave its benchmark rate unchanged at 0.5 percent in this month's monetary policy meeting because not-that-strong data on labor and consumption isn't enough to justify the central bank raising its key rate.

"Exports and manufacturing are looking good, but labor and private consumption data aren't. If bond yields are continuing to see a steepening yield curve in line with the U.S. bond yields, then the BOK would inject more liquidity into markets," he said, adding the central bank will keep its "accommodative easing policy" alive without seeing substantial amounts of capital outflow because of the continued rise in U.S. bond yields.

But the economists said the recent rise in U.S. yields would suggest to investors that the global equity market has begun "thinking about a possible tightening of monetary policy." They also stressed investors may focus more on "cyclical stocks" such as semiconductors, infrastructure and telecommunication with expectations over the economy's medium- to long-term economic growth. Cyclical stocks mean stocks seeing business performance in sync with economic cycles.



Federal Reserve Chairman Jerome Powell testifies before the Senate Banking Committee hearing on
Federal Reserve Chairman Jerome Powell testifies before the Senate Banking Committee hearing on "The Quarterly CARES Act Report to Congress" on Capitol Hill in Washington, D.C., Dec. 1, 2020. Reuters-Yonhap

By Kim Yoo-chul

A recent steep rise in U.S. bond yields and a possible signal of U.S. inflation worries have some Wall Street investors wary that a repeat of the 2013 "taper tantrum" is in sight, possibly affecting the local stock market.

The benchmark U.S. 10-year Treasury note rose near 1.35 percent for the first time since February last year, meaning the yields have recovered to levels recorded just before the coronavirus struck. Bond yields move inversely to bond prices. A rise in bond yields could pose some threats to already high Wall Street and South Korean stocks.

On Tuesday, stock market analysts and economists said despite the rise in U.S. bond yields, it's less likely that a continued ascent will prove more problematic to the local stock market as Federal Reserve and other global central banks are expected to continue "monetary-easing" policies to keep the economic recovery momentum alive.

"We are closely monitoring the moves of U.S. treasury yields as the rises are mostly backed by expectations that visible progress in its vaccination program and additional fiscal stimulus will accelerate economic growth. But given ample liquidity in the market and growing needs to improve the economy, the Bank of Korea (BOK) is unlikely to change its accommodative monetary policy," said Kim Il-koo, chief economist at Hanwha Investment.

Kim added he doesn't expect the Federal Reserve to provide a signal to equity markets of the possibility of raising its benchmark rate as it would let consumer prices rise "for a while" so long as the vaccination efforts are successful.

"Rather than increasing the benchmark rate, the Federal Reserve will explore other available options to minimize the impact of the rising U.S. bond yields if it does so," another economist said on condition of anonymity.

The BOK will leave its benchmark rate unchanged at 0.5 percent in this month's monetary policy meeting because not-that-strong data on labor and consumption isn't enough to justify the central bank raising its key rate.

"Exports and manufacturing are looking good, but labor and private consumption data aren't. If bond yields are continuing to see a steepening yield curve in line with the U.S. bond yields, then the BOK would inject more liquidity into markets," he said, adding the central bank will keep its "accommodative easing policy" alive without seeing substantial amounts of capital outflow because of the continued rise in U.S. bond yields.

But the economists said the recent rise in U.S. yields would suggest to investors that the global equity market has begun "thinking about a possible tightening of monetary policy." They also stressed investors may focus more on "cyclical stocks" such as semiconductors, infrastructure and telecommunication with expectations over the economy's medium- to long-term economic growth. Cyclical stocks mean stocks seeing business performance in sync with economic cycles.



Kim Yoo-chul yckim@koreatimes.co.kr


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