Korean Won Halts Five-Day Gain Before Forecast Rate Cut

South Korea’s government bonds fell, pushing the three-year yield up by the most in almost a month, as the central bank unexpectedly left interest rates unchanged. The won weakened.

Only one out of 16 economists surveyed by Bloomberg News forecast today’s decision, while 15 predicted the seven-day repurchase rate would be cut by 25 basis points to 2.75 percent. The benchmark was last lowered by a quarter percentage point in July in the first reduction since 2009. The Federal Reserve concludes a two-day meeting today amid speculation it will step up asset purchases that boost the supply of dollars.

“We’re seeing a reversal of recent bond gains as the central bank’s decision disappointed investors who had expected as many as two more cuts within the year, including this month,” said Yum Sang Hoon, a fixed-income analyst at SK Securities Co. in Seoul. “I had thought the Bank of Korea might take a wait-and-see stance ahead of the Federal Reserve meeting today, but I expect a cut next month.”

The yield on the government’s 3.25 percent bonds due June 2015 climbed eight basis points, or 0.08 percentage point, to a three-week high of 2.88 percent in Seoul, Korea Exchange Inc. prices show. That’s the biggest increase since Aug. 16. Three- year debt futures slid 0.22 to 105.93 and the one-year interest- rate swap rose five basis points to 2.90 percent.

The won snapped a five-day gain, falling 0.2 percent to 1,128.43 per dollar, according to data compiled by Bloomberg. One-month implied volatility, a measure of exchange-rate swings used to price options, slid 18 basis points to 6.10 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

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