South Korea's government bonds post worst performance among 44 tracked markets as AI investment surge lifts economy and inflation

South Korea's government bonds lost 7.5% this year in local-currency terms, the worst performance among 44 markets tracked by Bloomberg. The benchmark three-year yield rose to about 3.9% Friday, its highest level since 2023.

A surge in AI investment and semiconductor demand has reignited South Korea's economy, lifted prices, and fueled bets the central bank will need to raise rates to rein in momentum.

The strong growth narrative driving investor fervor for artificial intelligence—which has lifted South Korea's stock market to the top of global rankings—is creating headwinds for the bond market.