Global financial market fluctuates due to Middle East-US bond interest rate shock

Global financial markets, including South Korea, faced significant challenges due to a surge in the 10-year U.S. government bond rates and the repercussions of the crisis originating in the Middle East. On Thursday, both KOSPI and KOSDAQ experienced substantial declines of 2~3%, and Asian stock markets, such as those in China and Japan, also saw declines. As concerns regarding an economic recession and rising international oil prices, which could contribute to inflationary pressures, continue to mount, the Bank of Korea decided to maintain the base interest rate at 3.50% per annum on this day. However, it did not rule out the possibility of an interest rate increase.

On Thursday, KOSPI closed at 2,415.80, down 46.80 points (1.90%) from the previous day. The KOSDAQ index also plunged 3.07% from the previous day to 784.04. Asian stock markets other than Korea also showed a downward trend. Japan's Nikkei stock on average fell 1.91%, and the Shanghai Composite Index and the Hong Kong H Index also dropped. The U.S. stock market, which opened on Wednesday (local time), also showed a downward curve across the board.

The instability in the global financial market was primarily attributed to the U.S. 10-year Treasury yield, a benchmark for global bond interest rates, surging to 4.93% during intraday trading on Thursday, marking its highest level since July 2007. This increase was driven by better-than-expected September U.S. consumption indicators, reinforcing the ongoing austerity measures.

Additionally, as crises originating in the Middle East continued to escalate, including the hospital explosion in the Gaza Strip, the price of West Texas Intermediate (WTI) crude oil for the November contract increased by 1.83% to reach $88.22 per barrel. The volatility index (VIX) of the Chicago Board Options Exchange (CBOE), often referred to as the 'fear index' on Wall Street, approached 20 at 19.22, reflecting an increase of 1.34 points (7.49%) from the previous day.


dhlee@donga.com