Seoul: Global bond yields are surging as concerns mount over a prolonged conflict in the Middle East potentially driving inflation. The yield on 30-year U.S. Treasury bonds surpassed 5 percent last week, while government bond yields in Japan, Britain, and Germany have also seen sharp increases. In contrast, Korea's 10-year government bond yield remains in the low 4 percent range.

According to Yonhap News Agency, the appeal of stocks typically diminishes with higher interest rates compared to safer assets like government bonds. This trend could dampen the enthusiasm surrounding AI-related investments, as higher discount rates lower the present value of future profits. Korea's stock market has been closely tied to rising global yields, with the Kospi dropping more than 3 percent on Tuesday.

Despite rising borrowing costs, household debt in Korea continues to climb. Household credit outstanding reached a record 1.99 quadrillion won ($1.32 trillion) by the end of March, marking an increase of 14 trillion won from the end of last year, based on an exchange rate of 1,500 won per dollar. This growth is attributed to continued "yeongkkeul" borrowing-where buyers stretch their finances to the limit to purchase homes-and leveraged stock investments known in Korean as "bittu."

Margin loans for stock trading, a key indicator of speculative borrowing, have exceeded 36 trillion won, another record high. Recently, Bank of Korea Senior Deputy Gov. Yoo Sang-dai hinted at a possible policy shift, suggesting that it might be time to halt rate cuts and consider raising them instead.

If interest rates rise while debt levels remain heavily inflated, households will face increasing financial burdens. The Bank of Korea estimates that even a 0.25 percentage point hike in lending rates would elevate household interest payments by 3.2 trillion won annually.

All sectors of the economy must brace for the possibility of sustained higher global rates. Households and businesses should adopt more conservative financial management strategies. Rising bond yields can also escalate corporate borrowing costs, making investment and expansion more costly.

The government should exercise caution when promoting expansionary fiscal policies without considering market conditions. Korea's bond yields have risen faster than those of other advanced economies, influenced by strong semiconductor exports and repeated government promises of fiscal expansion. If fiscal spending aimed at supporting livelihoods inadvertently elevates market interest rates, its effectiveness becomes questionable.

Korea plans to issue 110 trillion won in deficit-financing government bonds this year. Indicating that excess tax revenue could be used to reduce such issuance might alleviate concerns about the long-term sustainability of government finances.