Won Falls to 7-Week Low on Fed Risk; Bond Yields at 3-Month High

The won touched a seven-week low and government bonds fell on speculation the Federal Reserve will cut debt purchases that have fueled demand for emerging-market assets. Yields climbed to the highest in more than three months.

The South Korean currency delcined for a second day as Bank of Korea data today showed the nation’s current-account surplus narrowed to $3.97 billion in April from a revised $4.93 billion in March. Consumer confidence in the world’s largest economy climbed to a five-year high and U.S. home prices advanced by the most since April 2006, according to separate reports yesterday.

“The improvement in U.S. data increased speculation the Fed will taper its bond-buying program,” said Yoo Hyen Jo, an analyst at Shinhan Investment Corp. in Seoul. “The won’s drop may be limited as exporters may repatriate overseas income.”

The wonfell 0.5 percent to 1,132.92 per dollar in Seoul, according to data compiled by Bloomberg. The currency touched 1,133.72, the lowest level since April 11. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 40 basis points, or 0.40 percentage point, to 9.44 percent.

The yield on South Korea’s 2.75 percent government bonds due March 2018 rose 13 basis points to 2.85 percent, prices from Korea Exchange Inc. show. That’s the highest for a five-year note since Feb. 14, according to data compiled by Bloomberg.

Bank of Korea is using monetary and credit policies to boost corporate spending and support economic growth, central bank Governor Kim Choong Soo said at a meeting with local economists in Seoul today.

South Korea will sell $1 billion of debt at near 3 percent, the Chosun Ilbo newspaper reported today citing unidentified persons in the government and the financial industry. The timing and size of the dollar-bond sale hasn’t been decided, Choi Hee Nam, a finance ministry director general, said by telephone today.

To contact the reporter on this story: 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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