Bloomberg News

Korea Bond Yield Rises Most in Three Months on BOK Rate Increase

June 10, 2011

June 10 (Bloomberg) -- South Korea’s bonds declined, with the yield rising the most in almost three months, after the central bank raised interest rates for the third time this year to rein in inflation.

Governor Kim Choong Soo boosted the benchmark seven-day repurchase rate to 3.25 percent from 3 percent, following quarter-percent increases in January and March, the central bank said in a statement in Seoul today. Eight of 17 economists surveyed by Bloomberg News predicted the decision with the rest having forecast no change.

“The move today is a clear message authorities are determined to keep prices under control,” said Choi Seok Won, head of research at Hanwha Securities Co. in Seoul. “Today’s decision is likely to weigh on the bond and stock markets, while remaining supportive for the currency.”

The yield five-year government bonds, notes due March 2016, climbed 12 basis points, or 0.12 percentage point to 3.95 percent, according to prices from Korea Exchange Inc. The gain in the yield was the biggest since March 16.

The won rose 0.03 percent to 1,082.65 per dollar at the 3 p.m. close in Seoul and fell 0.2 percent this week, according to data compiled by Bloomberg. The Kospi stock index fell for a seventh day, bringing this week’s decline to 3.2 percent, most since February.

The Bank of Korea said consumer prices are likely to sustain a “strong” upward trend as economic growth drives demand-side pressure and oil prices are high. The South Korean economy appears to be on a “solid” growth track amid strong exports, the central bank said in a statement.

--Editor: Sandy Hendry

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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