Concerns about fiscal deficits are growing worldwide, leading to rising government bond rates in major countries such as the United States and Japan. The yield on 30-year U.S. government bonds has surpassed 5% for the first time in 1 year and 7 months, while Japan's yield has exceeded 3.2%, setting a record high. Korea's bond rates have not fluctuated much yet, but there are concerns about potential increases if discussions on the supplementary budget become more serious.
◇ U.S. and Japanese 30-year rates surge, surpassing 5.0% and 3.1%, respectively.
According to the U.S. Treasury on the 14th, the final bid yield on 30-year U.S. government bonds has shown a steep rise, recently fluctuating around 5%. On the 21st of last month, it surged to 5.08% during trading, surpassing a psychological resistance level, but then fell to 4.88% on the 5th of this month. However, it rose again to 4.97% on the 6th and has maintained around 4.9%. This is the first time the 30-year government bond yield has exceeded 5% since October 31, 2023 (5.04%).
The yield on 30-year U.S. government bonds remained around 4.5% until the first half of last year but began to rise starting from November, when President Trump was elected. Close to the psychological resistance of 5% on January 14 (4.97%), it fell afterward. However, following the announcement of reciprocal tariffs in early April this year, it surpassed 4.80% again and recently exceeded 5%, as concerns about the U.S. fiscal deficit have increased due to Trump’s large-scale tax cut push.
Long-term government bond rates are also rising in countries like Japan and Europe, which are facing fiscal deficit issues. According to Investing.com, the yield on Japan's 30-year government bonds surged to 3.19% during trading on the 21st of last month, setting a record high. The yield on the UK's 30-year government bonds also exceeded 5.5% on the 23rd of last month, nearing the highest rate recorded in early April (5.64%, the highest since 1998), while Germany's rates rose to the 3.15% range on the same day, marking the highest in two months.
In Japan, discussions about tax cuts ahead of the House of Councilors election in July are increasing the likelihood of government bond issuance, while in the UK, concerns about an economic recession have intensified following the announcement of U.S. reciprocal tariffs, which has been interpreted as the reason for the sharp rise in government bond rates. In Germany, concerns about deteriorating finances seem to have increased following Friedrich Merz's announcement of plans for a larger-than-expected fiscal stimulus ahead of the general elections.
Kang Seung-won, head of bond strategy at NH Investment & Securities, noted, "Long-term government bond rates are usually sensitive to inflation. Despite the recent increase in downward pressure on inflation in various countries, the rapid rise in rates is due to fiscal issues rather than economic ones," adding, "As global liabilities increase, doubts about sustainability have emerged."
◇ Korean government bond rates remain stable… “If the supplementary budget exceeds 30 trillion won, there will be an increase.”
Korea is showing relative stability. According to the Korea Financial Investment Association, the yield on government bonds as of the 12th was 2.827% for 10-year bonds, 2.838% for 20-year bonds, and 2.749% for 30-year bonds. The 10-year and 20-year bonds have steadily risen since recording lows on April 30 (2.563% and 2.545%, respectively), while the 30-year bonds have risen sharply since April 21 (2.454%). However, compared to January of last year, when rates exceeded 3%, there has been a significant decline.
At the beginning of last month, the first supplementary budget was set at 13.8 trillion won, with 9.5 trillion won planned to be procured through additional government bond issuance, indicating that government bond yields have remained stable. According to Ahn Do-geol, a member of the Democratic Party of Korea, the yield on 10-year government bonds, which was 2.749% on January 2 of this year, fell to 2.593% after the supplementary budget was passed. This represents a decrease of 15 basis points (1 basis point = 0.01 percentage point). Government bond yields and prices move in opposite directions; as supply increases leading to lower bond prices, bond yields rise.
However, if the issuance of government bonds increases due to the second supplementary budget, there is a possibility that government bond rates will spike. Jin Sung-jun, chair of the Democratic Party of Korea's policy committee, appeared on the radio on the 6th and stated, "Considering that 20 to 21 trillion won is additional funding needed after deducting the 14 trillion won from the 35 trillion won proposed by the Democratic Party earlier this year, it could increase further depending on the president's will and the government's fiscal capacity."
Jo Yong-goo, a researcher at Shinyoung Securities, said, "If policies such as universal disaster relief payments or debt forgiveness for small business owners are added, it could increase further," adding, "In this case, the issuance next year could significantly rise, leading to higher interest rates." Kang Seung-won also predicted, "If the scale of the supplementary budget unexpectedly increases to around 30 trillion won, the yield on Korea's 10-year bonds could rise to 2.90%."