South Korea Bonds Advance on Interest-Rate Cut Bets; Won Gains

South Korea’s three-year bonds rose the most in more than two weeks on speculation the central bank will reduce borrowing costs as global policy makers act to support growth. The won advanced for a fourth day.

The Bank of Korea will lower its benchmark seven-day repurchase rate by 25 basis points to 2.75 percent on Sept. 13, according to 15 of 16 economists in a Bloomberg News survey. One predicted no change. Bonds also rose as Finance Minister Bahk Jae Wan said today his comment on Sept. 4 that the nation may avoid using active monetary policies to spur growth wasn’t targeted at this week’s central bank meeting. European Central Bank President Mario Draghi announced last week an unlimited bond-purchase program while the Federal Reserve meets this week to consider whether more easing is needed.

“With the ECB’s bond-buying plan and speculation the Fed will perform a third round of quantitative easing, there are expectations the Bank of Korea will act in line and ease monetary policy,” said Lee Seung Hoon, a Seoul-based fixed- income analyst at Samsung Futures Inc. “Local shares declining is also supporting bonds.”

The Kospi (KOSPI) index of stocks fell for a second day. The yield on the government’s 3.25 percent bonds due June 2015 fell four basis points, or 0.04 percentage point, to 2.77 percent in Seoul in the biggest decline since Aug. 24, Korea Exchange Inc. prices show. Three-year debt futures rose 0.07 percent to 106.25 and the one-year interest-rate swap slid two basis points to 2.84 percent.

The nation’s unemployment rate rebounded from a seven-month low to 3.2 percent in August, a separate survey showed before data due tomorrow.

The won advanced 0.1 percent to 1,128.15 per dollar, according to data compiled by Bloomberg. It touched 1,127.45 yesterday, the strongest since Aug. 10. One-month implied volatility, a measure of exchange-rate swings used to price options, slid 40 basis points to 6.05 percent.

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