Short-Term Treasury Yields Rise in September; Long-Term Bonds End Broadly Unchanged

Impact of Geopolitical Tensions, FOMC, and Other Factors

Short-term Treasury yields rose early in September amid escalating geopolitical tensions between the United States and Iran and inflation concerns. Long-term yields fell as they retreated from the sharp rise following the U.S. Federal Reserve’s FOMC meeting, and ended the month broadly unchanged.

The Korea Financial Investment Association (KOFIA) announced its “September 2026 OTC Bond Market Trends” on October 12. At the end of September, the yield on one-year Treasury bonds stood at 3.733%, up 29.2 basis points (1 bp = 0.01 percentage point) from the end of the previous month. The three-year yield rose 17.3 basis points to 4.011%, while the 10-year yield increased 9.4 basis points to 4.407%. The 20-year Treasury yield fell 7.0 basis points to 4.420%, and the 30-year yield declined 0.1 basis point to 4.526%.

September 2026 OTC Bond Market Trends. Korea Financial Investment Association

KOFIA explained, “Treasury yields rose sharply early in the month due to heightened geopolitical tensions in the Middle East following a renewed escalation of the U.S.-Iran conflict and a sharp rise in international oil prices. Foreign investors’ net selling of three-year government bond futures also contributed to the rise in yields.”

It added, “The global rise in long-term yields also affected the domestic bond market, with the yield on 10-year U.S. Treasuries surpassing 5% by the middle of the month. Inflation concerns stemming from the sharp rise in international oil prices and increased vigilance over August inflation grew, while the U.S. Treasury’s long-term bond buyback volume fell short of market expectations, highlighting supply-demand pressures on long-term bonds and adding upward pressure on yields.”

Long-term bonds ended the month broadly unchanged as a retreat following the recent sharp rise coincided with South Korea’s inclusion in the WGBI. KOFIA said, “The Bank of Korea’s Monetary Policy Board did not meet this month, while the U.S. Federal Reserve raised its policy rate by 25 basis points at the FOMC meeting. Long-term yields fell, led by longer-dated bonds, as yields retreated from their recent sharp rise following the FOMC.” It added, “Thereafter, long-term bonds ended the month broadly unchanged as falling WTI prices and a stable won-dollar exchange rate coincided with increased foreign net buying of 10-year government bond futures and continued purchases of medium- and long-term Korean Treasury bonds toward the end of the month in connection with South Korea’s inclusion in the WGBI.”

Bond issuance in September totaled KRW 9.4 trillion in net issuance, with total outstanding bonds reaching KRW 3,186.8 trillion. Although issuance fell sharply, led by Korean Treasury bonds, increased issuance of Monetary Stabilization Bonds, financial bonds, and corporate bonds drove an KRW 11.8 trillion increase from the previous month.

In September, corporate bond demand forecasts totaled 36 deals and KRW 250.4 billion, down KRW 224.6 billion from the same period a year earlier. Total bids submitted came to KRW 1.4461 trillion, a decrease of KRW 1.5109 trillion over the same period. The subscription rate was 577.5%, down 45.0 percentage points.

OTC bond trading volume in September reached KRW 448.7 trillion, up KRW 60.3 trillion from the previous month. Average daily trading volume also increased by KRW 3 trillion to KRW 22.5 trillion.

Individual investors recorded net purchases of KRW 1.3342 trillion in government bonds, KRW 769.3 billion in special bonds, and KRW 499.3 billion in corporate bonds. Their total net purchases came to KRW 4.0225 trillion, up KRW 816.4 billion from the previous month.

By contrast, foreign investors’ net purchases fell by KRW 300 billion from the previous month. Net purchases of government bonds declined by KRW 200 billion, while those of Monetary Stabilization Bonds fell by about KRW 100 billion. At the end of September, foreign holdings of domestic bonds totaled KRW 336.9 trillion, down KRW 7.8 trillion from the end of the previous month.

KOFIA said, “CRS rates rose from the beginning of the month, widening the swap basis inversion and weakening foreign investors’ incentives for arbitrage, while foreign bond selling intensified, particularly in short-term bonds. However, toward the end of the month, the slowdown in the rise in CRS rates and the narrowing of the swap basis inversion partially restored arbitrage incentives. Foreign buying of bonds, particularly medium-term bonds, remained steady, partly due to inflows associated with South Korea’s inclusion in the WGBI.”

This content was produced with the assistance of AI translation services.