Bloomberg News

Korean Won Gains, Bonds Fall After Inflation Forecast Raised

June 29, 2011

June 29 (Bloomberg) -- South Korea’s won rose for a second day and bonds fell on speculation the central bank will boost borrowing costs after the government said inflation this year would be faster than predicted.

The yield on five-year notes climbed to the highest level in more than a month after the presidential office said in a statement yesterday that consumer-price inflation will be around 4 percent this year, compared with the official target of 3 percent. Germany’s biggest lenders and insurers will meet with the Finance Ministry in Berlin today to thresh out their contribution to a Greek aid package as parliament votes on a 78 billion-euro ($112 billion) austerity plan.

“Comments on inflation are adding to speculation that the central bank may need to raise interest rates in the second half,” said Kong Dong Rak, fixed-income analyst at Taurus Investment & Securities Co. in Seoul. “Rising confidence that Greece will avoid a default is reducing appetite for bonds as a safe-haven asset.”

The won rose 0.6 percent to 1,076.80 per dollar as of the 3 p.m. close in Seoul, according to data compiled by Bloomberg. The currency advanced as much as 0.7 percent earlier.

The yield on the 4 percent government bonds due March 2016 rose four basis points, or 0.04 percentage point, to 4.01 percent, the highest since May 11, according to prices from Korea Exchange Inc. A basis point is 0.01 percentage point.

--Editors: Ven Ram, Simon Harvey

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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