South Korea’s government bonds jumped, pushing yields to record lows, and the won fell as the central bank unexpectedly cut borrowing costs for the first time in more than three years.
Only two out of 16 economists surveyed by Bloomberg News predicted a rate reduction, while the rest expected no change. Governor Kim Choong Soo and his board lowered the benchmark seven-day repurchase rate to 3 percent from 3.25 percent, the first decrease since February 2009, according to a statement in Seoul today. The won dropped the most in almost two months as the Kospi (KOSPI) Index of shares lost 2.2 percent.
“Today’s cut signals the growth data for the second quarter, which haven’t been released yet, may be worse than expected, making the BOK take preemptive action,” said Ryan Oh, a Seoul-based fixed-income analyst at Samsung Securities Co. “Investors may now look forward to another cut this year.”
The yield on 3.5 percent bonds due March 2017 slid 25 basis points, or 0.25 percentage point, to 3.08 percent in Seoul, Korea Exchange Inc. prices show. That is the lowest level since Bloomberg started compiling Korean bond rates in 2000. Ten-year yields declined 21 basis points to an all-time low of 3.31 percent. Three-year debt futures jumped 0.69 to 105.75 and the one-year interest-rate swap fell 31 basis points to 2.94 percent.
The won touched a two-week low as data showed Australian employers unexpectedly reduced payrolls in June and the jobless rate rose for a second month, adding to concern the global economy is slowing.
The currency fell 0.9 percent to 1,151.38 per dollar in the biggest decline since May 16, according to prices compiled by Bloomberg. It earlier touched 1,151.40, the weakest level since June 29. The currency’s one-month implied volatility, a measure of exchange-rate swings used to price options, fell 16 basis points to 7.52 percent.
“The BOK’s rate cut, combined with Australia’s negative job data, heightened risk aversion in the market,” said Ryoo Hyun Jung, a Seoul-based chief currency dealer at Citibank Korea Inc. “Reaction in the won market after the rate decision was bigger than expected, and I don’t think the lowering is something that would trigger capital outflow from South Korea.”
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