Korean Won Falls, Bond Yields Drop to Record-Low on Europe Woes

South Korea’s won weakened and government bonds rose, sending yields to all-time lows, on concern Europe’s debt crisis will slow global economic growth.

The Kospi (KOSPI) Index of shares dropped 1.6 percent after estimates by Markit Economics showed yesterday that euro-area services and manufacturing output contracted for a sixth month in July. South Korean consumer confidence dropped to a five- month low in July, central bank figures showed today. The Finance Ministry said in a report to parliament yesterday that conditions are deteriorating in the global economy.

“Europe’s weak manufacturing data and stocks declining are putting downward pressure on the won,” said Jeon Seung Ji, a Seoul-based currency analyst for Samsung Futures Inc. “Steep declines in the won may be limited as investors short the euro and buy the won.” A short position is a bet that a currency will decline.

The won fell 0.6 percent to 1,153.15 per dollar as of 9:15 a.m. in Seoul, according to data compiled by Bloomberg. It touched 1,153.24 earlier, the weakest since July 13. The currency’s one-month implied volatility, a measure of exchange- rate swings used to price options, advanced 14 basis points, or 0.14 percentage point, to 8 percent.

The yield on the 3.25 percent bonds due June 2015 fell five basis points to 2.78 percent, Korea Exchange Inc. prices show. Three-year debt futures rose 0.16 to 106.27 and the one-year interest-rate swap declined three basis points to 2.76 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