South Korean Bonds Advance on Concern China Output May Contract

South Korea’s government bonds rose for the first time in three days as investors waited for China data forecast to show output contracted for the third straight month in the world’s second-largest economy.

A preliminary gauge of manufacturing in South Korea’s biggest export market will probably come in at 48.7 for March, according to the median estimate in a Bloomberg survey before figures due today from HSBC Holdings Plc and Markit Economics. Levels below 50 signal contraction. South Korea’s finance ministry will auction 20-year government bonds today.

The yield on the 3.125 percent sovereign notes due March 2019 dropped one basis point to 3.18 percent as of 9:54 a.m. in Seoul, Korea Exchange Inc. prices show. The yield rose six basis points last week.

“In Korea, investors react more sensitively to news from China than the U.S., and there’s a wait-and-see mode ahead of the Purchasing Managers’ Index data today,” said Travis Choi, a Seoul-based fixed-income analyst at Woori Investment & Securities Co. “Yields have rebounded to attractive levels, and there will be increased demand on price merits.”

North Korea fired 46 short-range rockets over the weekend, Yonhap news reported, citing the South’s military authorities. All the missiles fell into the sea, the report said. The Kospi (KOSPI) index of shares rose as overseas funds were set to be net purchasers for the first time in two weeks.

The won strengthened for the first time in five days, gaining 0.1 percent to 1,079.27 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, climbed 14 basis points, or 0.14 percentage point, to 8.04 percent.

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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