I have repeated my view that the US economic recovery has been well on the right track. Jobless rate will likely continue to fall over the next two years. The history shows me a lesson that the only reliable indicator of equity market that I can trust is jobless rate. Equity market performed well when jobless rate was in trend of declining. In contrast, when jobless rate was rising, equity market was never good. The only exception when equity market showed good performance in bad job market was when the Fed was using active easing monetary policy. How about now? The US equity market is currently fulfilling two prerequisites. It has declining jobless rate as well as exceptionally accommodative monetary policy.
Regarding Korean bond market, I have been with a view that BOK's monetary policy will not make meaningful impact on bond market last and this year. Therefore, in order to figure out future bond market, it is not significant argument that BOK will likely cut or hold this year. Moreover, we need take a careful look on what happened in Korean bond market over the past three years. BOK hiked five times by 125bp but 3-year and 10-year KTB yields fell more than 50bp and 100bp respectively. I don't' think that 25bp or 50bp change in policy rate will bring out any significant impact on bond mark in this sense. Therefore, I asserted an idea that bond market will be in range-bound until there is any sign of sell-off in US Treasury market. Simply put, my idea is that there will be 50bp sell-off in 10-year UST if the Fed announces the start of QE3. However, there will be 100bp sell-off if the Fed gives up the ticket of additional QE3 because of better than expected economic numbers. Now we are in the middle of two possibilities, in my view. In conclusion, Korean bond market is currently vulnerable because of the possible sell-off in UST market. The idea of sell off to be triggered by inflation concern does not make sense at all.