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Korea Bonds Rise a Fourth Day on Rate-Cut Speculation; Won Gains

South Korea’s three-year bonds rose for a fourth day on speculation the central bank will cut interest rates as early as next week to slow gains in the won, Asia’s best-performing currency last year.

Policymakers at the Bank of Korea meet Jan. 11 to review borrowing costs. The central bank kept the benchmark seven-day repurchase rate at 2.75 percent last month after cuts of 25 basis points each in July and October. The government lowered its growth forecasts for 2012 and 2013 in December. The won touched a 16-month high today, after erasing an earlier loss.

“Speculation that the BOK may cut interest rates is rising,” said Park Hyung Min, fixed-income strategist at Shinhan Investment Corp. in Seoul. “A rate cut is likely to help stem the won’s appreciation, while uncertainties surrounding the economy remain.”

The yield on the 2.75 percent bonds due December 2015 fell five basis points, or 0.05 percentage point, to 2.77 percent in Seoul, according to Korea Exchange prices. The won closed at 1,061.65 per dollar, according to data compiled by Bloomberg. It touched 1,061.64 earlier, the highest since Sept. 2, 2011. The currency appreciated 8.3 percent last year.

Finance Minister Bahk Jae Wan told reporters yesterday that he’s concerned about “herd behavior” in the currency market and the government is “actively” reviewing possible measures for the won. South Korea’s economy will “gradually” recover this year, Bank of Korea Governor Kim Choong Soo said today.

The finance ministry said in a statement today the government will spend 72 percent of this year’s budget in the first half to respond to economic uncertainties.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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