Bloomberg News

Korean Government Bonds Advance, Won Falls, as U.S. Data Weakens

July 09, 2012

South Korea’s government bonds rose, sending three-year yields to the lowest since 2010, and the won slid as U.S. payroll gains trailed estimates, heightening concern growth in the world’s biggest economy is slowing.

The 80,000 gain in employment for June followed a 77,000 increase in May and compares with a 100,000 jump projected in a Bloomberg News survey, U.S Labor Department figures showed on July 6. The euro touched a two-year low and the Kospi (KOSPI) Index of shares fell to its lowest level since June 28 as overseas funds sold more of the nation’s shares than it bought for the first time in six days. The Bank of Korea will probably hold the benchmark rate at 3.25 percent for a 13th month at the July 12 meeting, according to all 12 economists surveyed by Bloomberg News.

“Demand for South Korean bonds is strong, and with global economy data deteriorating, it looks like some investors are betting the Bank of Korea will cut rates,” said Hwang Jae Hong, who oversees 12 trillion won ($10.5 billion) as head of fixed income at UBS Hana Asset Management in Seoul. “I don’t think the central bank will lower the benchmark rate as long as Europe comes up with ways to delay the crisis.”

The yield on the government’s 3.25 percent bonds due June 2015 slid two basis points, or 0.02 percentage point, to 3.21 percent at the close in Seoul, Korea Exchange Inc. prices show. That’s the lowest rate for a benchmark three-year bond since December 2010. Ten-year government notes fell two basis points to 3.52 percent, a record low. Three-year debt futures advanced 0.09 to 105.01 and the one-year interest-rate swap slid five basis points to 3.27 percent, the lowest since January 2011.

The won weakened 0.3 percent to 1,141.43 per dollar in Seoul, according to data compiled by Bloomberg. It touched 1,145.53 earlier, the weakest since July 2. The currency’s one- month implied volatility, a measure of exchange-rate swings used to price options, jumped 33 basis points, or 0.33 percentage point, to 7.50 percent.

“The won weakened on U.S. jobs data and the declining euro, and foreigners beginning to sell Korean stocks again today may affect the won if the trend continues,” said Kim Do Hee, a Seoul-based currency dealer for Australia & New Zealand Banking Group Ltd.

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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