Global inflation was the largest contributor to synchronization between South Korean and U.S. long-term interest rates, accounting for about 41%, according to a Bank of Korea report released on the 20th. The study examined daily movements in 10-year government bond yields from 2001 through June 2024 and found the strongest co-movement immediately after the 2008 global financial crisis and during the COVID-19-related global inflation shock in 2021. U.S. long-term interest rates contributed 22.7%, Federal Reserve monetary policy 18.3% and U.S. economic conditions 18%. The BOK said global inflation affected Korean long-term yields mainly through the policy channel, as external shocks changed expectations for current and future central-bank rates. A separate risk-compensation channel works through changes in the term premium demanded by investors. Synchronization was also pronounced during the Federal Reserve's unconventional monetary policy, including quantitative easing. Around major QE announcements, both short- and long-term Korean yields fell, with policy expectations contributing more to the long-term decline than risk compensation. A BOK official said improved communication with markets could ease synchronization to some extent by managing policy expectations.