South Korean treasury bond prices edged up on Friday after massive sell-offs on Thursday, but short-dated certificate of deposit (CD) rates hit a 7-month high amid growing chances of an early rate hike. Debt futures managed to pare up to a third of Thursday's losses but lost ground quickly after a high-ranking BOK official told Reuters that the current base rate of 2 percent was exceptionally low, hinting that the record-low rate could not sustain for long.
"I dropped my cautious view on the rate outlook after the ever-hawkish comments from the BOK governor. Now I expect a rate hike of up to 50 basis points before the end of this year," said Choi Suk-won, a fixed-income analyst at Samsung Securities. The debt market was dealt a heavy blow on Thursday from the Bank of Korea (BOK) governor's strong signal that it might raise the rates soon.
Treasury bonds regained some composure, with yields turning lower, but the 91-day CD rate, the benchmark for mortgage lending, rose for a second day to hit a seven-month high of 2.59 percent, tracing the recent surge in other debt rates. One-year interest rate swap (IRS) rates eased slightly after soaring 18 basis points to a 9-month high in the previous session. The front-end treasury bond futures contract ended up 5 ticks at 109.45 after gyrating between a 30-tick fall and 21-tick rise during the session. The contract on Thursday suffered its biggest daily loss since June.