Korean Bonds Hold Gains Before Interest-Rate Review; Won Steady

South Korea’s government bonds were little changed, keeping the five-year yield at the lowest level since November, and the won was just shy of a 17-month high before the central bank reviews interest rates this week.

The Bank of Korea will leave its seven-day repurchase rate at 2.75 percent when policy makers meet on Jan. 11, according to all but one of 14 analysts surveyed by Bloomberg. One forecast a 25 basis point cut, after similar moves at reviews in July and October. South Korea’s jobless rate held at 3 percent in December -- the lowest it has been in data going back to 1999 -- as the number of employed people increased by 277,000, a government report showed today.

“Increased anxiety over the Bank of Korea’s rate decision due later this week is limiting moves of the bonds,” said Kyung Hee Jung, fixed-income strategist at Shinhan Investment Corp. in Seoul. “The Bank of Korea is likely to leave rates unchanged this month as there are some signs the economy is improving.”

The yield on South Korea’s 2.75 percent bonds due September 2017 was unchanged at 2.87 percent, the lowest since Nov. 21, according to Korea Exchange prices. The rate declined four basis points, or 0.04 percentage point, yesterday and is down 10 basis points for the year.

The won traded at 1,062.70 per dollar as of 10:41 a.m. in Seoul, little changed from 1,062.90 yesterday, according to data compiled by Bloomberg. It has strengthened 9.2 percent in the past 12 months and touched 1,060.50 on Jan. 7, the strongest level since Aug. 4, 2011.

Herd Behavior

Finance Minister Bahk Jae Wan said last week he was concerned about herd behavior in the foreign-exchange market and may introduce measures to curb won volatility. The central bank is unlikely to cut interest rates to stem the currency’s appreciation, Nomura Inc. said in a research note published today.

“A stronger Korean won is a reflection of improvements in global growth and the risk backdrop,” Nomura analysts including Kwon Young Sun, who is based in Hong Kong, wrote in the report. “The strong currency would hurt the economy only if it became substantially overvalued. Korean exporters can still enjoy price competitiveness.”

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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