Korea Bond Yield Slips to 3-Week Low Before China GDP; Won Rises

South Korean bonds rose, pushing the benchmark five-year yield to the lowest level in more than three weeks, ahead of data that may show growth in China slowed. The won strengthened.

Second-quarter expansion in the world’s second-largest economy and South Korea’s biggest trading partner eased to 7.5 percent from 7.7 percent in the previous three months, according to the median estimate in a Bloomberg survey of 45 economists before data due today. The Kospi stock index fell 0.8 percent as global investors sold more shares than they bought, snapping two days of net purchases, exchange data show.

“Demand for bonds is strong as stocks are out of investor favor,” said Kong Dong Rak, a fixed-income strategist at Hanwha Securities Co. in Seoul. “Concerns that a slowdown in China’s economy is deepening are helping fuel some flight-to-safety bids for now.”

The yield on the 2.75 percent government notes due March 2018 fell five basis points to 3.08 percent, the lowest level since June 19, prices from Korea Exchange Inc. show.

The won gained 0.03 percent to 1,124.15 per dollar as of 10:40 a.m. in Seoul, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, gained 18 basis points, or 0.18 percentage point, to 8.64 percent.

South Korea’s won should outperform its regional peers as the “pass-through impact from the U.S. business cycle kicks in,” according to a report dated July 11 from Siddharth Mathur, Singapore-based head of Asia Strategy at Citigroup Inc., and two other analysts.

Chinese President Xi Jinping and Premier Li Keqiang, grappling with the prospect of the weakest increase in gross domestic product in 23 years, have indicated they will tolerate slower growth to focus on policy changes to create more sustainable expansion.

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

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

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