Won Rises to Nine-Month High on U.S. Talks Optimism; Bonds Gain

South Korea’s won rose to the strongest level in almost nine months on signs U.S. lawmakers are moving closer to a deal to avoid a debt default and reopen its partially-shut government. Sovereign bonds gained.

“Tremendous progress” has been made in talks to end the impasse, Senate Majority Leader Harry Reid said yesterday. Politicians are working on a proposal to suspend the debt ceiling through Feb. 7 and fund the government until Jan. 15, a person familiar with the talks said. If no deal is reached, the U.S. could suffer its first default on Oct. 17. Global funds bought more South Korean equities than they have sold every day since Aug. 22, the longest streak since 1998, according to stock exchange data available since 1997.

“The U.S. budget talks seem to be making progress, although there is nervousness among traders as the deadline nears,” said Jude Noh, chief currency trader at Suhyup Bank in Seoul. “Foreign investors’ purchases of local stocks seem a strategic investment based on Korea’s fundamentals.”

The won climbed 0.5 percent to 1,066.75 per dollar in Seoul, according to data compiled by Bloomberg. It earlier touched 1,066.63, the strongest level since Jan. 24. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose five basis points to 6.68 percent.

Former Treasury Secretary Lawrence Summers said American economic policy must remain focused on addressing inadequate demand, and predicted the U.S. would not default on its debt, at a conference in Seoul today.

Forecasts Raised

HSBC Holdings Plc raised its forecast yesterday for the Korean won to 1,070 per dollar by the end of this year and 1,095 by the end of 2014, from earlier forecasts of 1,090 and 1,100, respectively. The Federal Reserve’s September decision to delay tapering and the U.S. government shutdown have helped reduce core bond volatility which will support some Asian currencies in the near term, HSBC said in a research note.

The yield on South Korea’s 2.75 percent sovereign notes due June 2016 fell one basis point, or 0.01 percentage point, to 2.88 percent, according to Korea Exchange Inc. prices.

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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