Bloomberg News

Korean Bonds Slide on Improved U.S. Economy Outlook; Won Falls

March 15, 2012

South Korea’s bonds fell for a second day, sending the three-year yield to the highest level since August, as a slump in U.S. Treasuries narrowed their interest-rate advantage. The won slid to a one-month low.

The U.S. 10-year note’s yield rose 33 basis points this week to 2.33 percent, narrowing the premium offered by similar- maturity South Korean debt. The gap shrank 26 basis points to 162 basis points, according to data compiled by Bloomberg. Unemployment in the U.S. will “decline gradually” and the inflation outlook is “subdued,” the Federal Reserve said in a statement on March 13.

“The Fed’s economic outlook and not adding further monetary stimulus are continuing to affect U.S. Treasuries and Korean bonds,” said Kong Dong Rak, a Seoul-based fixed-income analyst at Taurus Investment & Securities Co. “I expect the three-year Korean yield to rise to 3.6 percent, a level that investors would think as cheap enough to buy.”

The yield on South Korea’s 3.25 percent bonds due December 2014 climbed six basis points, or 0.06 percentage point, to 3.58 percent at the close in Seoul, Korea Exchange Inc. prices show. That’s the highest for a benchmark three-year note since August. Three-year debt futures fell 0.12 percent to 103.91. The one- year interest-rate swap climbed two basis points to 3.56 percent.

The won slipped 0.1 percent to 1,127.85 per dollar, according to data compiled by Bloomberg. The currency touched 1,132.03 earlier, the lowest since Feb. 16. One-month implied volatility, a measure of exchange-rate swings used to price options, rose 35 basis points to 9.08 percent. The Kospi Index (KOSPI) of shares declined less than 0.1 percent.

“A stronger dollar contributed to the weaker won today, but losses were limited as exporters sold the dollar to convert income,” said Jeon Seung Ji, a Seoul-based currency analyst at Samsung Futures Inc.

A free-trade agreement reached more than four years ago between South Korea and the U.S. takes effect today.

To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net

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


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