Korea Won Jumps Most in Two Weeks, Bonds Slump as BOK Holds Rate

The won rose the most in more than two weeks as global funds boosted holdings of South Korean shares on speculation multilateral efforts will ease tensions with North Korea. Bonds fell the most since September 2011 as the central bank kept interest rates steady for a sixth month.

Foreign investors bought more local shares than they sold for a second day, stock exchange data show. Governor Kim Choong Soo and his board held the benchmark seven-day repurchase rate at 2.75 percent, the central bank said in a statement in Seoul today. Eleven of 20 economists surveyed by Bloomberg News forecast a reduction as tensions with North Korean threaten to damp business and consumer sentiment. The North may detonate a nuclear device or carry out a missile test as early as this week, the South’s Defense Ministry said on April 8.

“The won briefly soared as the central bank kept rates unchanged,” said Jeon Seung Ji, a Seoul-based currency analyst for Samsung Futures Inc. “The currency is receiving a bout of support from foreign buying of local stocks and easing tensions linked to North Korea’s missile tests.”

The won strengthened 0.5 percent to 1,130.76 per dollar at 10:50 a.m. in Seoul, after rising as much as 0.9 percent to 1,125.94 earlier, according to data compiled by Bloomberg. One- month implied volatility in the won, a measure of expected moves in the exchange rate used to price options, fell 29 basis points, or 0.29 percentage point, to 10.15 percent.

U.S. Defense Secretary Chuck Hagel said yesterday at a Pentagon news conference that North Korea has “been skating very close to a dangerous line” and should tone down its “bellicose rhetoric” to ease mounting tensions in the region. China’s exports to North Korea fell in the first quarter, in what may be a signal to Kim Jong Un’s regime to change its behavior following a December rocket launch and nuclear test.

‘Lingering Risks’

President Park Geun Hye is preparing to roll out fiscal stimulus after the finance ministry said yesterday that any prolonged geopolitical risks may exacerbate weakness in economic-growth momentum. While South Korea is wrestling with elevated household debt, a stagnant property market and weakness in the yen that helps competitors in Japan, Kim said last month that interest rates are already “accommodative.”

“The Bank of Korea made an independent decision” despite the government’s pressure to act, said Lee Jae Seung, a fixed income strategist at KB Investment & Securities Co. in Seoul. “The decision shows the central bank isn’t assessing the economy is weakening both at home and overseas.”

The yield on the 2.75 percent government notes due March 2018 rose 10 basis points, or 0.10 percentage point, to 2.68 percent, according to prices from Korea Exchange Inc. That was the biggest jump since September, 2011. The yield touched a record low of 2.52 percent on March 28.

The benchmark Kospi Index (KOSPI) of shares fell 0.4 percent, reversing an earlier advance. The Bank of New York Mellon Korea ADR Index, which tracks American depositary receipts of South Korean companies in New York, jumped 2.3 percent yesterday, ending seven days of declines, the longest losing streak in more than two months.

To contact the reporters on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net; Yewon Kang in Seoul at ykang51@bloomberg.net

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

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