Korean Won Rebounds as Investors Await EU Summit; Bonds Fall

South Korea’s won rebounded from a five-month low and government bonds fell on speculation European leaders will come up with a strategy to ease the region’s debt crisis when they meet this week.

German Finance Minister Wolfgang Schaeuble will discuss the 17-nation currency with his French counterpart, Pierre Moscovici, today before European Union leaders meet for a summit in Brussels on May 23. The Kospi Index (KOSPI) advanced in line with regional stocks, even as overseas investors cut their holdings of Korean shares for a 14th day.

“The won is taking a breather after sharp losses,” said Han Sung Min, a Seoul-based currency dealer at Busan Bank. “Some investors think Europe-related negative issues were all reflected in last week’s declines.”

The won gained 0.3 percent to 1,168.93 per dollar in Seoul, after sliding 2.2 percent last week, according to data compiled by Bloomberg. The currency touched 1,175.30 on May 18, the weakest since Dec. 20. One-month implied volatility for the won, a measure of exchange-rate swings used to price options, climbed 20 basis points, or 0.20 percentage point, to 12.13 percent.

South Korea has enough foreign-exchange reserves to cope with the Greek crisis and will take “prompt” action if needed, Vice Finance Minister Shin Je Yoon said last week. The reserves increased $10.4 billion in the first four months of this year to $316.8 billion, according to data compiled by Bloomberg.

Leaders of the Group of Eight nations pushed for Greece to stay in the euro area during the weekend and supported boosting growth, even as Germany said Europe can’t spend its way out of the debt crisis.

The yield on South Korea’s 3.25 percent bonds due December 2014 rose one basis point to 3.37 percent, Korea Exchange Inc. prices show. Three-year debt futures fell 0.08 to 104.47 and the one-year interest-rate swap climbed one basis point to 3.33 percent.

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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