Korean Bonds Advance as Growth Concerns Persist; Won Strengthens
South Korea’s government bonds advanced as the euro-area finance ministers meeting and U.S. employment data failed to ease concern the global economy is slowing. The won reversed an earlier loss.
Euro-region finance chiefs agreed yesterday to make available 30 billion euros ($37 billion) by the end of this month to shore up Spain’s banks. Job openings in the U.S. increased in May after plunging the prior month, figures showed yesterday. South Korea’s jobless rate was at 3.2 percent in June, unchanged from a four-month low in May, official figures showed today. The Bank of Korea will hold the benchmark rate at 3.25 percent for a 13th month tomorrow, according to 14 out of 16 economists surveyed by Bloomberg News. Two forecast a 25 basis point cut.
“Although we hear some positive news from Europe, the focus in the market has now moved to growth concerns and the economy data we see isn’t enough to lift sentiment,” said Moon Hong Cheol, a Seoul-based fixed income analyst at Dongbu Securities Co. “Expectations for a rate cut by the BOK tomorrow have weakened, but bonds will be supported if the governor says the decision wasn’t unanimous or gives negative views about the economy.”
The yield on 3.25 percent bonds due June 2015 slid two basis points, or 0.02 percentage point, to 3.20 percent at the close in Seoul, Korea Exchange Inc. prices show. That’s the lowest for the benchmark bond since December 2010. Three-year debt futures advanced 0.11 to 105.06 and the one-year interest- rate swap declined one basis point to 3.25 percent, the lowest since January 2011.
The won strengthened for the first time in four days, gaining 0.3 percent to 1,140.90 per dollar. It reversed an earlier loss on speculation South Korean exporters are selling the greenback and as some investors stopped their long position on the dollar, according to Han Sung Min, a Seoul-based currency trader for Busan Bank. A long position is a bet an asset will rise in value.
The currency’s one-month implied volatility, a measure of exchange-rate swings used to price options, dropped seven basis points to 7.47 percent.
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