Korean Won Gains, Bonds Fall as Overseas Funds Buy More Stocks

South Korea’s won advanced and government bonds fell, sending the 10-year yield to a five-month high, as funds based abroad boosted holdings of local stocks.

International investors bought more shares than they sold every day this month, taking net purchases for December to $3.3 billion. The yen weakened to a 20-month low against the dollar as Shinzo Abe was approved as Japan’s prime minister by the lower house amid speculation he will push for further monetary stimulus. South Korea’s president-elect Park Geun Hye said government bonds need to be sold to fulfill election pledges, Yonhap News reported. The Kospi index closed little changed after rallying as much as 1 percent.

“Overseas investors’ net purchases of Korean stocks and cross trades of selling the yen and buying the won are the biggest issues in the currency market preventing the won from weakening,” said Byeon Ji Young, a Seoul-based currency analyst at Woori Futures Co. “With financial institutions entering book-closing mode, not many investors are betting aggressively on one position.”

The won appreciated 0.1 percent to 1,073.28 per dollar at the close in Seoul, according to data compiled by Bloomberg. This year’s 7.4 percent advance is the biggest among Asia’s 11 most-traded currencies. One-month implied volatility, a measure of expected moves in exchange rates used to price options, fell 20 basis points, or 0.20 percentage point, to 4.75 percent. It was 13.55 percent at the end of 2011.

The won also gained as some exporters converted their overseas earnings, according to Han Sung Min, a Seoul-based currency trader for Busan Bank. Local financial markets will be closed on Dec. 31.

Consumer Confidence

South Korea’s consumer confidence index was steady at 99 in December, unchanged from the previous month and indicating pessimists outnumber optimists, the central bank said in a statement today.

The yield on South Korea’s 2.75 percent bonds due September 2017 rose three basis points to 3.05 percent, Korea Exchange Inc. prices show. The 10-year yield rose three basis points to 3.23 percent, the highest level for a similar-maturity benchmark note since July 16. The one-year interest-rate swap advanced one basis point to 2.82 percent.

“With not much supportive news for bonds, we’re seeing a rapid bear-market steepening move in the curve,” said Lee Gil Won, a Seoul-based bond trader for Shinhan Bank.

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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