G-20’s Narrowest Bond-Yield Gap Moves to Korea: Chart of the Day

The yield premium for South Korea’s first-ever 30-year bonds will be the narrowest among Group of 20 nations, as dealers outbid each other to control a new market segment that may lure pension funds managing $760 billion.

The CHART OF THE DAY compares the yield spread between 10- and 30-year local-currency sovereign notes for G-20 nations. Korean bonds will trump those of Italy for the narrowest gap, while the widest differentials are on U.K. and U.S. debt, data compiled by Bloomberg show. Korea’s 30-year bonds, scheduled to be sold Sept. 11, will be priced to yield three or six basis points more than 10-year notes, the finance ministry said after primary dealers made offers. The range among G-20 countries now goes from Italy’s 39 basis points to the U.K.’s 148 points.

“Bidding was so competitive because these are Korea’s first 30-year bonds,” Peter Park, a Seoul-based fixed-income analyst at Woori Investment & Securities Co., said on Aug. 30, after initial bids were submitted. “We’ve advised clients not to hurry to buy,” since the yield premium will be very narrow, he said. Woori rates a gap of 22 basis points as “reasonable.”

Korean bonds gained for a fifth month in August as economists in a Bloomberg survey predicted growth in Asia’s fourth-biggest economy will probably slow to 2.85 percent in 2012 from 3.6 percent last year.

“There was definitely some overshooting in the spread, but in the end, investors may be thinking the yield level is not so bad considering there is a 30-year maturity period,” said Yoon Yeo Sam, an analyst in Seoul at Daewoo Securities Co., one of the six dealers chosen to manage the sale.

Dealers were betting slower growth and an ageing population will eventually push yields lower, the analyst said. Koreans 65 years and older will comprise about 16 percent of the population by 2020, more than double the 2000 level, according United Nations forecasts. Total assets managed by South Korea’s National Pension Service and private retirement funds will reach 860 trillion won ($760 billion) by year-end, according to Oh Jin Ho, a senior researcher at the Seoul-based pension research body established by Mirae Asset Financial Group.

Korea is selling the 30-year notes to reduce revolving risks by increasing the average maturity of debt and to boost the country’s credibility in the financial market. Consumer prices in August rose at the slowest pace in 12 years, 1.2 percent from the same period in 2011, the government said in a report yesterday.

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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