Korea’s Cofix down for a 3rd month in Feb. amid low bond yields

2023.03.16 10:19:01 | 2023.03.16 11:13:02

[Photo by Yonhap]이미지 확대

[Photo by Yonhap]

Cofix, the benchmark for short-term financing cost, has declined for the third month in February amid low bond yields after the collapse of Silicon Valley Bank (SVB) in the U.S.

The fixed annual mortgage rate at Hana Bank stood at 4.149~4.749 percent on Wednesday, down 0.47 percentage point from March 2. The credit loan rate also fell by 0.15 percentage point to 5.254~5.854 percent during the same period after the five-year bank bond yield, the benchmark interest rate, dropped due to the SVB-led crisis.

The yield on five-year bank bonds, which stood at 4.564 percent on Feb. 28, fell to as low as 4.044 percent on Tuesday.

The fixed annual mortgage rate at four major banks ? Shinhan, KB Kookmin, Hana, and Woori ? slightly fell to 4.149~6.08 percent on Tuesday from 4.41~6.32 percent on March 2.

Bank bond yields had been projected to rise on the continued monetary tightening policy of the U.S. Federal Reserve. The trend, however, reversed after the SVB went bankrupt.

Investors turned to U.S. bonds, considered a safe asset, amid concerns that other banks may collapse as well.

The yield on 10-year U.S. Treasuries, which had exceeded 4 percent at the beginning of this month, is in the mid-to-upper 3 percent range as of Wednesday. Demand for government bonds has increased on growing preferences for safe assets, and yields dropped as they are inversely proportional to bond prices. The decline in U.S. government bond yields led to a fall in Korean government bond yields and, in turn, bank bond yields.

Floating interest rates at commercial banks are also heading south.

According to the Korea Federation of Banks on Wednesday, Cofix stood at 3.53 percent in February, down 0.29 percentage point from the month earlier. It has been declining for the third month after taking a fall for the first time in 11 months in December last year. Korean commercial banks will apply Wednesday’s Cofix to floating interest rates on new mortgage loans.

The annual variable interest rate at KB Kookmin Bank on new loans is expected to decline to 4.33~5.73 percent after reflecting the drop on Thursday. The lender vowed last week that it will lower interest rates for all household loans and apply the adjusted rate from Thursday to reduce burden on families.

The rate at Woori Bank will also drop to 5.1~6.1 percent from 5.39~6.39 percent. Cofix on new transactions, however, rose 0.05 percentage point over one month to 3.07 percent, which will drive up the lender’s mortgage rate slightly to 5.48~6.28 percent from 5.43~6.23 percent.

There are mixed views on how the loan interest rates in Korea will move amid fluctuating U.S. Treasury yields. Economic uncertainty also grows in the wake of the SVB’s collapse.

By Seo Jeong-won, Lim Young-sin, and Choi Jieun

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