Korean Won Rebounds, Government Bonds Fall on U.S Budget Talks

South Korea’s won rebounded from a one-week low and government bonds fell on speculation the U.S. will succeed in avoiding the so-called fiscal cliff that threatens to derail the recovery in the world’s biggest economy.

President Barack Obama expressed confidence yesterday that he and Congress could reach a budget agreement to avoid the $607 billion of automatic spending cuts and tax increases scheduled to take effect next year. The yen fell to the lowest level in almost seven months amid bets an opposition party that advocates more-aggressive easing will take power next month. The Kospi index (KOSPI) of shares advanced. Bank of Korea Governor Kim Choong Soo said last week the central bank will work to curb excessive volatility in the won.

“Concerns over U.S. fiscal cliff, which had limited gains in the won, seem to have eased,” said Byeon Ji Yeoung, a Seoul- based currency analyst at Woori Futures Co. “The rebound also comes as a reaction of losses on Friday, and a weakening yen is triggering cross trades of selling the yen and buying the won.”

The won strengthened 0.4 percent to 1,088.05 per dollar as of 9:46 a.m. in Seoul, according to data compiled by Bloomberg. The currency fell 0.5 percent on Nov. 16, the biggest decline in two months. One-month implied volatility, a measure of exchange- rate swings used to price options, was unchanged at 5.88 percent.

The yield on the government’s 2.75 percent bonds due September 2017 rose one basis point to 2.85 percent, Korea Exchange Inc. prices show. The one-year interest-rate swap advanced one basis point to 2.78 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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