Korean Bonds Advance as U.S. Budget Talks Drag On; Won Steady

South Korea’s government bonds rose on concern time is running out for U.S. lawmakers to avert budget changes that risk pushing the world’s biggest economy into recession. The won was little changed.

U.S. stocks fell yesterday as President Barack Obama planned to return to Washington before a year-end deadline for budget revisions needed to prevent more than $600 billion in automatic tax increases and spending cuts. South Korea’s Finance Ministry will release its revised economic growth outlook for this year and 2013 at 10:30 a.m. local time. The Kospi (KOSPI) index of shares declined as overseas funds sold more Korean shares than they bought for the first time this month.

“Bonds are being supported as it’s the last week of December, making investors worried the U.S. may fail to reach the budget agreement in time,” said DJ Park, a bond analyst at Samsung Futures Inc. in Seoul. “Bond yields rose a lot recently, and we are also seeing some retracement.”

The yield on South Korea’s 2.75 percent bonds due September 2017 declined one basis point, or 0.01 percentage point, to 3.04 percent as of 9:56 a.m. in Seoul, Korea Exchange Inc. prices show. The rate rose 13 basis points this month. The one-year interest-rate swap fell one basis point today to 2.81 percent.

The won traded at 1,072.80 per dollar in Seoul, having closed yesterday at 1,073.28, according to data compiled by Bloomberg. It earlier fell as much as 0.1 percent before recouping the loss amid speculation some exporters were repatriating income. This year’s 7.4 percent advance is the biggest among Asia’s 11 most-traded currencies.

A government report tomorrow may show South Korea’s factory output expanded 0.8 percent in November from the previous month, the biggest gain since May. Manufacturers’ confidence rebounded from a three-year low, according to Bank of Korea data released today.

One-month implied volatility, a measure of expected moves in exchange rates used to price options, rose 28 basis points to 5.23 percent. It was 13.55 percent at the end of 2011.

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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