Bloomberg News

South Korean Bond Yields Rise From Record Lows, Won Drops

September 04, 2012

South Korea’s bond yields climbed from record lows as Finance Minister Bahk Jae Wan said the nation may avoid using active monetary and fiscal policies to spur growth, weakening bets for an interest-rate cut.

The government plans to announce economic support measures next week without increasing this year’s budget, Bahk said at a conference in Seoul today. It favors boosting consumption through deregulation rather than by implementing expansive monetary and fiscal policies, he said. Yields fell to all-time lows earlier after data released in the past week showed exports contracted for a second month, boosting speculation the central bank will lower borrowing costs for a second time this year.

“The market was full of rate-cut expectations recently, but Bahk’s comments today made investors put more weight on the possibility of a rate-hold,” said Lee Gil Won, a Seoul-based bond trader for Shinhan Bank. “We still have more than a week before the central bank’s next policy meeting, so it’ll be a wait-and-see mode until then.”

The yield on the government’s 3.5 percent bonds due March 2017 rose two basis points, or 0.02 percentage point, to 2.85 percent in Seoul, Korea Exchange Inc. prices show. It touched 2.82 percent earlier, the lowest for a benchmark five-year note in data compiled by Bloomberg going back to August 2000.

Three-year debt futures declined 0.09 to 106.26 and the one-year interest-rate swap was little changed at 2.83 percent.

The Bank of Korea kept its benchmark rate unchanged last month after unexpectedly lowering it by 25 basis points to 3 percent in July. The central bank’s next policy meeting is scheduled for Sept. 13.

Won Drops

South Korea’s overseas sales fell 6.2 percent last month from a year earlier and factory output declined 1.6 percent in July from the previous month, according to official data.

The won weakened 0.2 percent to 1,133.19 per dollar in Seoul, after touching the highest level in more than a week of 1,129.73 yesterday, according to data compiled by Bloomberg. One-month implied volatility, a measure of exchange-rate swings used to price options, slid 28 basis points to 7.39 percent. The Kospi (KOSPI) index of shares fell 0.3 percent.

“We saw more of importers buying the dollar to settle bills than exporters selling the greenback,” said Han Sung Min, a Seoul-based currency trader at Busan Bank.

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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