Korean Won Falls, Bonds Gain as Fed Stimulus Bets Weaken

South Korea’s won dropped from a one-week high and bonds advanced as expectations for further monetary stimulus by the U.S. faded after a policy maker said he would resist more Federal Reserve action.

Federal Reserve Bank of St.Louis President James Bullard said yesterday that recent signs of improvement in the economy would prompt him to oppose any new Fed program to buy bonds, known as quantitative easing. The central bank said in minutes released this week that many participants at the latest meeting favored more stimulus measures. The Kospi Index (KOSPI) of shares dropped as overseas investors sold more of the nation’s equities than they bought for the first time since Aug. 3.

“There are increased doubts whether the Fed will actually perform a third round of quantitative easing or not,” said Cho Young Bok, a Seoul-based currency dealer for Daegu Bank. “Still, we may see South Korean exporters selling the dollar as the won weakens, which will limit won’s losses.”

The won weakened 0.3 percent to 1,134.15 per dollar in Seoul, data compiled by Bloomberg show. It touched 1,129.35 yesterday, the strongest level since Aug. 14, and was little changed for the week. One-month implied volatility for the won, a measure of exchange-rate swings used to price options, fell 17 basis points, or 0.17 percentage point, to 7.18 percent.

The yield on the government’s 3.25 percent bonds due June 2015 slid four basis points to 2.84 percent, the lowest since Aug. 13, Korea Exchange Inc. prices show. The rate dropped nine basis points this week. Three-year debt futures rose 0.16 to 106.06 and the one-year interest-rate swap fell two basis points to 2.90 percent.

“Bonds are being supported as stocks fall on disappointment over further monetary easing,” said Kong Dong Rak, a Seoul-based bond analyst at Taurus Investment & Securities Co.

To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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