South Korea’s bonds fell the most in almost two months as Bank of Korea left interest rates unchanged and Governor Kim Choong Soo said the board didn’t discuss a cut. The won declined.
The central bank held the benchmark seven-day repurchase rate at 3.25 percent for an 11th month, as predicted by all 17 economists in a Bloomberg News survey, and said it will continue to “normalize” borrowing costs. The won slid as Greek political leaders struggle to form a coalition government after a May 6 election, reigniting concern about the country’s willingness to comply with bailout agreements. The Kospi Index (KOSPI) fell as overseas investors sold more Korean shares than they bought for a seventh day, according to exchange data.
“There were some expectations in the market for comments from the central bank that may signal a rate cut, but the governor clearly stated the bank will normalize rates, which means a rise,” said Kong Dong Rak, a Seoul-based fixed-income analyst at Taurus Investment & Securities Co. in Seoul.
The yield on South Korea’s 3.25 percent bonds due December 2014 rose four basis points, or 0.04 percentage point, to 3.41 percent, according to Korea Exchange Inc. prices. That’s the biggest increase since March 15.
Three-year debt futures declined 0.11 to 104.37 and the cost of the one-year interest-rate swap increased two basis points to 3.46 percent.
South Korea will take action to stabilize financial markets if needed as uncertainty over Europe has increased after elections in France and Greece, Finance Minister Bahk Jae Wan said today. The central bank’s policy statement was “hawkish,” and rate increases may come in early 2013, Kwon Goohoon and Chung Sungsoo, Seoul-based economists at Goldman Sachs Group Inc., wrote in a note to clients.
The won lost 0.2 percent to 1,142.30 per dollar in Seoul, according to data compiled by Bloomberg. It touched 1,145.75 earlier, the weakest level since April 11. One-month implied volatility, a measure of exchange-rate swings used to price options, jumped 32 basis points to 8.25 percent.
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