Korea Bonds Fall as U.S. Retail Sales Beat Estimates; Won Drops

South Korea’s government bonds declined, driving the five-year yield to the highest in more than a week, as better-than-expected U.S. data boosted stocks and reduced the appeal of sovereign debt. The won fell.

The Kospi (KOSPI) index of shares rose for the first time in three days with overseas investors poised to be net purchasers of local equities, exchange data show. Retail sales in the U.S. expanded 1.1 percent in March, more than the 0.9 percent forecast in a Bloomberg survey, figures showed yesterday. Bank of Korea Governor Lee Ju Yeol said in Washington over the weekend that making surprise interest-rate decisions isn’t desirable, and that expectations of a rate cut are low in the money market.

“Stocks gaining on improvement in U.S. retail sales are supporting risk sentiment and adding to selling pressure for bonds,” said Park Dongjin, a Seoul-based fixed-income analyst at Samsung Futures Inc. “With Lee’s comments, there is now a consensus that monetary policy will be hawkish.”

The yield on the 3.125 percent notes due March 2019 increased one basis point, or 0.01 percentage point, to 3.17 percent as of 9:49 a.m. in Seoul, Korea Exchange data show. That’s the highest since April 4.

The won weakened 0.2 percent to 1,040.46 per dollar, according to data compiled by Bloomberg. It touched 1,031.55 on April 10, the strongest since August 2008. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, declined 11 basis points to 7.21 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

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