How much will interest rates change?

As the coupon rate on three-year treasury bonds soared by 1 percentage point to the 6 percent level over the past 11 days, market interest has focused on the future movement of interest rates. Individual customers and interest income gainers as well as institutional investors, including banks and investment trust companies, have shown a sensitive response to their recent movement.

The possibility for an additional surge is low:

Saying that the recent surge in the coupon rate was characteristic of a technical rebound following the profit-seeking efforts of some speculative forces, many analysts here said that the possibility for an additional surge rates was slim.

Noting signs that long-term investment funds would flow into the market when the coupon rate on five-year treasury bonds soars to 6.5-7%, Lim Kyung, a researcher at the Bank of Korea (BOK) said, ``The possibility of an additional surge in interest rates is low, and the government’s decision to control the supply of bonds will affect the interest rate movement.``

Commenting that it is too early for the Korean economy to have entered the recovery phase, despite recent remarks to this effect by a senior government official, Lim Chan-Ik, a team chief at Hanwha Securities, said, ``From the viewpoint of economic fundamentals, the interest rate will not continue rising because fund demands by enterprises are still weak.`` It was also observed that some speculative forces, who had led the interest rate surge, have disposed of a considerable portion of their holdings at a loss.

In a Feb. 25 report on monthly prospects for interest rates, Tong Yang Securities said there was no reason to further boost interest rates in light of the ongoing economic slowdown, ample liquidity among financial institutions and reduction of net issuance of bonds.

Long-term prospects for interest rates unclear:

The prospect that trend toward rising interest rates has begun earlier than expected contrasts with prospects that interest rates will turn downward again.

Chung Han-Young, a researcher at Korea Financing Research Institute, said, ``Until late last year, we expected that rates would drop in the first half of this year and rise again in the latter half. But it is inevitable for the rate to rise further as consumer prices are likely to climb by 3% in February.``

Han Young-Jin, a section chief at Shinhan Bank, said, ``Cash-laden customers are showing no sign of moving their money into the stock market due to predictions that interest rates will soon increase.``

On the other hand, Tong Yang Securities predicted that the coupon rate would move at the present level until mid-March, but go down thereafter due to the government’s efforts to stabilize the rate, ample liquidity, and the additional lowering of interests rates in the United States.

Park Hyeon-Jin witness@donga.com