South Korea raised less than a 10th of the amount planned in an auction of inflation-linked bonds as a cash squeeze and moderating outlook for consumer-price gains sapped demand for the securities.
The Finance Ministry sold 55.6 billion won ($49 million) of 10-year linkers, having offered 600 billion won of the securities, according to a statement today on its website. The first coupon of 1.125 percent compares with a May inflation rate of 1 percent that was the lowest since 1999.
More than $2 trillion has been pulled from global markets since May 22, when Federal Reserve Chairman Ben S. Bernanke signaled the possibility of tapering measures that have fueled demand for emerging-market assets. The Federal Open Market Committee yesterday said “downside risks to the outlook for the economy and the labor market” have diminished.
“Demand for linkers, as well as bonds across the board, crashed because concerns over capital outflows or liquidity shortages intensified after the Fed’s comments,” said Lee Jung Bum, a fixed-income strategist at Korea Investment & Securities Co. in Seoul. “We don’t see inflation picking up.”
The so-called breakeven rate, or the rate of price increases traders are expecting over the life of the securities in Korea, declined to 2.03 percent yesterday from this year’s high of 2.61 percent in January, according to data compiled by Bloomberg. Barclays Plc said in a report this week that inflation-linked bonds in Korea are not attractive.
The yield on the government’s 2.75 percent conventional bonds due March 2018 jumped 18 basis points today to 3.16 percent, the highest level for a benchmark five-year security since July 2012, prices from Korea Exchange Inc. show. A March 28 level of 2.51 percent was the lowest in data going back to August 2000.
South Korea first introduced inflation-linked bonds in March 2007 that pay interest twice yearly, with the coupon and final principal redemption amount linked to the headline inflation rate.
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