Korea Won Near One-Week Low on Europe Debt Concern; Bonds Steady
South Korea’s won traded near the lowest level in more than a week as renewed concern that Europe’s debt crisis is worsening boosted demand for safer assets. Government bonds were little changed.
Spain’s 10-year bonds slumped yesterday, sending yields to a euro-era high. Today, Greece will host international creditors -- the European Commission, the European Central Bank and the International Monetary Fund -- amid concern the nation won’t meet bailout commitments. China’s manufacturing may contract at a slower pace in July, according to a preliminary reading released today by HSBC Holdings Plc and Markit Economics.
“Europe looks like a time bomb now with Spain concerns persisting and Greece’s default risk rising,” said Han Sung Min, a Seoul-based currency trader for Busan Bank. The won erased earlier losses as local exporters converted their earnings, according to Han.
The won closed at 1,146.15 per dollar, compared with 1,146.55 yesterday, according to data compiled by Bloomberg. It touched 1,151.00 earlier, the weakest since July 13. The currency’s one-month implied volatility, a measure of exchange- rate swings used to price options, rose eight basis points, or 0.08 percentage point, to 7.86 percent. The Kospi Index (KOSPI) advanced 0.3 percent.
South Korea’s economy probably expanded 0.5 percent last quarter from the previous three months when it grew 0.9 percent, a Bloomberg survey of economists showed before data due July 26. Moody’s Investors Service lowered credit outlooks on Germany, the Netherlands and Luxembourg yesterday to negative, citing “rising uncertainty” about the region’s debt woes.
Government bonds were little changed, after erasing earlier gains. The yield on the 3.25 percent bonds due June 2015 was steady at 2.83 percent, after rising from an earlier low of 2.80 percent, Korea Exchange Inc. prices show. Three-year debt futures slid 0.08 to 106.11 and the one-year interest-rate swap was little changed at 2.78 percent.
“Bonds weakened in the afternoon as Kospi gained and data from China boosted speculation that the Chinese government’s policies to boost local consumption are starting to show effect,” said Moon Hong Cheol, a Seoul-based fixed income analyst at Dongbu Securities Co.
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