Bloomberg News

Won Extends Rally, Bonds Fall as Fed Supports Risk Demand

September 17, 2012

South Korea’s won strengthened to a six-month high and government bonds fell as the Federal Reserve’s announcement of further stimulus continued to support demand for riskier assets.

Overseas investors bought $1.7 billion more of the nation’s shares than they sold last week, exchange data show. Policy makers must control volatile capital flows as quantitative easing measures taken in the U.S. and Europe have a “negative spillover” into developing countries, Bank of Korea Governor Kim Choong Soo said on Sept. 14.

“It’s a market still driven by Fed’s announcement, although further gains will depend on overseas inflows to the stock market” said Lee Jung Hyun, a Seoul-based currency dealer for Industrial Bank of Korea. (024110) The risk of central bank intervention to curb currency gains is limiting appreciation, according to Lee.

The won advanced 0.1 percent to close at 1,115.97 per dollar in Seoul, after a 1 percent gain on Sept. 14 that marked its best performance since May, according to data compiled by Bloomberg. It earlier touched 1,113.35, the strongest level since March 2. One-month implied volatility, a measure of exchange-rate swings used to price options, rose 24 basis points, or 0.24 percentage point, to 6.15 percent.

Sales at major South Korean department stores dropped 6.9 percent last month, the biggest decline since November 2004, a government report showed today.

Bonds Slide

The yield on the government’s 3.25 percent bonds due June 2015 increased four basis points to 2.90 percent, the highest level in almost a month, Korea Exchange Inc. prices show. Three- year debt futures slid 0.10 to 105.87 and the one-year interest- rate swap advanced four basis points to 2.96 percent.

The U.S. 10-year bond yield climbed 14 basis points to 1.87 percent in New York on Sept. 14, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

“U.S. Treasuries fell last week as the Fed’s announcement of another quantitative easing spurred inflation concerns, and similar worries are affecting the Korean market today,” said Kong Dong Rak, a Seoul-based bond analyst at Taurus Investment & Securities Co.

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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