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Korean Government Bonds Fall, Won Gains as Spain Seeks Bailout

South Korean government bonds plunged, with the five-year yield increasing by the most this year, and the won strengthened as Spain sought a bailout for its banks and China’s exports beat estimates.

The 100 billion euros ($126 billion) asked for by Spain on June 9 is about 2.7 times the funds deemed necessary by the International Monetary Fund in a report released the previous day. China’s overseas sales rose in May at more than double the pace analysts estimated, official figures showed over the weekend. South Korea’s producer-price inflation eased to a 29-month low of 1.9 percent, central bank data showed today. The benchmark five-year yield dropped four basis points last week.

“Yields fell recently on bets the Bank of Korea may lower interest rates, but with Spain asking for a bailout, investors have started to doubt whether a rate cut will be necessary,” said Yum Sang Hoon, a fixed-income analyst at SK Securities Co. in Seoul.

The yield on the 3.5 percent government bonds due March 2017 rose nine basis points, or 0.09 percentage point, to 3.44 percent at the close in Seoul, Korea Exchange Inc. prices show. That’s the biggest one-day increase for a benchmark five-year note since Dec. 19.

Three-year debt futures dropped 0.25 percent to 104.62 and the one-year interest-rate swap rose four basis points to 3.33 percent. The Bank of Korea held its benchmark seven-day repurchase rate at 3.25 percent for a 12th month on June 8.

The won advanced 0.8 percent to 1,165.85 per dollar, the biggest gain in two weeks, according to data compiled by Bloomberg. The currency touched 1,164.70 earlier, the strongest level since May 22. One-month implied volatility, a measure of exchange-rate swings used to price options, dropped 13 basis points to 10.40 percent.

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