Korean Bonds Fall as Choi Refrains From Signaling Policy Easing

South Korea’s bonds fell, pushing the three-year yield to a one-week high, as the finance chief nominee refrained from signaling potential monetary easing even as he said risks to the economy are increasing.

Incoming Finance Minister Choi Kyung Hwan told parliament today that he will boost efforts to close the gap between the ministry’s and the central bank’s economic outlooks. The Bank of Korea will probably hold its benchmark rate unchanged at 2.5 percent at a July 10 review, according to all 14 economists surveyed by Bloomberg News.

The yield on the 2.75 percent notes due June 2017 rose three basis points, or 0.03 percentage point, to 2.65 percent at the close in Seoul, Korea Exchange Inc. prices show. The 10-year yield increased two basis points to 3.16 percent.

“Choi expressed negative views about South Korea’s economy but fell short of mentioning the combination of extra budget and a benchmark rate cut that the market had been expecting,” said Shin Hong Sup, a Seoul-based fixed-income strategist for Samsung Securities Co. “If some of the central bank’s board members disagree on holding borrowing costs on July 10, it can fuel rate-cut speculation again.”

The won weakened 0.1 percent to 1,011.72 per dollar, according to data compiled by Bloomberg. It touched 1,008.37 on July 4, the strongest level since 2008. One-month implied volatility, a gauge of expected swings in the exchange rate used to price options, fell two basis points to 4.64 percent.

Choi said today that while the exchange rate should be determined by investors, stabilizing the currency market is important.

“The nominee’s comments on the exchange rate were general, but did add some weakening pressure to the won as some investors were thinking he may express tolerance for currency appreciation,” said Jeon Seung Ji, a Seoul-based currency analyst for Samsung Futures Inc.

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 Anil Varma, Andrew Janes

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