South Korean Bonds Drop Ahead of BOK Chief Nominee Hearing

South Korean government bonds fell after the nominee to take over as central bank governor said households need to prepare for higher interest rates,

Households will on average be able to cope with a certain degree of rate increases as much of the debt is owed by high-income earners, Lee Ju Yeol said in a document submitted to parliament. President Park Geun Hye nominated Lee, who worked at the BOK for 35 years, to take over when current chief Kim Choong Soo’s term ends on March 31.

“The market is trying to grasp what kind of person Lee is ahead of the hearing, and local reports seem to show him to be a hawkish, traditional central bank person,” said Kong Dong Rak, a fixed-income strategist at Hanwha Investment & Securities Co. in Seoul.

The yield on South Korea’s 3.125 percent government notes due March 2019 rose two basis points to 3.14 percent as of 10:58 a.m. in Seoul, Korea Exchange Inc. prices show.

The won gained 0.3 percent, the most in a week, to 1,070.15 per dollar, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, advanced nine basis points, or 0.09 percentage point, to 7.72 percent.

The Federal Open Market Committee, which begins a two-day meeting tomorrow, will cut the monetary authority’s monthly bond purchases by $10 billion, according to the median forecast in a Bloomberg News survey.

To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net

To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Robin Ganguly, Amit Prakash

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