Korea Won Set for Longest Rally Since 2007 on Growth; Bonds Fall

South Korea’s won is set to advance for the fifth straight month, the longest rally since 2007, on optimism the nation will attract foreign funds as the economy heads for the fastest growth since 2010. Government bonds fell.

The country’s current-account surplus widened to $9.51 billion in October, official data showed this week. The Bank of Korea said on Nov. 27 that growth momentum is picking up. The won touched a two-week low yesterday on concern exporters are losing competitiveness against Japanese rivals as the yen drops. South Korea is watching the foreign-exchange market for drastic movements, Finance Minister Hyun Oh Seok told reporters in Seoul on Nov. 25.

“The economy has the positive factors that will support foreign inflows and won appreciation,” said Park Sang Hyun, chief economist in Seoul at HI Investment & Securities Co. “The only concern for me is the smoothing operation from the authorities, given the yen weakness.”

The won climbed 0.1 percent for the month and 0.2 percent today to 1,059.40 per dollar as of 11:04 a.m. in Seoul, according to data compiled by Bloomberg. This brings the rally starting July to 7.8 percent. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped three basis points, or 0.03 percentage point, this month and 19 basis points today to 5.6 percent.

A government report today showed industrial production rose 3 percent in October from a year earlier after a 3.9 percent drop in September. South Korea’s economy could achieve the official gross domestic product growth targets of 2.8 percent for this year and 3.8 percent for 2014, Shin Woon, director-general at the Bank of Korea, said on Nov. 27.

The yield on the 2.75 percent sovereign bonds due June 2016 climbed one basis point to 3 percent today, according to Korea Exchange Inc. prices, the highest level since Sept. 6. It has risen four basis points this week and 18 basis points since Oct. 31.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net

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

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