South Korean bond yields have jumped on rising anticipation for a back-to-back hike at home in line with big leaps in the U.S. to tame runaway inflation.

The three-year government bond yield moved closer to annual high by adding 4.4 basis points to 3.13 percent by midday Tuesday after a jump of 12.8 basis points on Monday. The curve on the longer date spiked faster, with the five-year and 10-year bond yields at new annual highs of 3.347 percent and 3.389 percent, respectively. The curve at 3.3 percent was last touched in January 2014.

The 20-year, 30-year, and 50-year papers each yielded 3.352 percent, 3.271 percent, and 3.259 percent.

The flattening around 3.3 percent on the longer-dated curve reflects the anticipation for a 50-basis-point hike at the U.S. Federal Open Market Committee meeting this week.

U.S. personal consumption expenditure price index for March, released last Friday, jumped 6.6 percent on year, the fastest since January 1982. The country’s employment cost index for the first quarter rose 1.4 percent on year, making a back-to-back gain from 1.0 percent addition in the previous quarter and exceeding market’s expectation.

“What the U.S Fed fears the most is inflation led by wage increases and March data provides strong rationale for its faster tightening pace,” said Kang Seung-won, analyst at NH Investment & Securities.

While market assumes a hike of half a percentage point this week, some are projecting the Fed could yank up the rates by bigger pace of 75 basis points next month, which would place U.S. rate target range at 1.5-1.75 percent.

Korea’s rate at 1.5 percent after two hikes this year would have to count in the U.S. actions at upcoming May 26 meeting as the next rate-setting meeting would be in July as not to trigger further capital flight from Korean markets.

If the U.S Fed delivers a half percentage point hike three times in a row, its rate would be 2.75 percent by the end of this year, and the rate would go as high as 3.00 percent with at least one 0.75-percentage-point hike included, noted Kim Joon-young of Heungkuk Securities.

The bond yield has more upside than downside, Kim observed.

Further dampening the market, the government issues new treasuries worth 14.5 trillion won this month. The 30-year Korean government worth 4.2 trillion won was auctioned off at 3.290 percent on Monday. Bidding for 2.5 trillion won worth of 3-year bond is scheduled on Tuesday and for 1.1 trillion won worth of 2-year bond on Wednesday.

Weak Korean won also waters down appeal in Korean assets.

It closed Tuesday at 1,267.8 against the dollar, down 2.7 from previous session.

By Ahn Byung-joon, Kim Yoo-shin and Cho Jeehyun

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]