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Korean Bond Yields Drop to Record Low, Won Falls on Growth Woes

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July 25 (Bloomberg) -- South Korea’s government bonds rose, sending yields to all-time lows, and the won weakened as the central bank said the nation risks failing to meet a growth estimate that was lowered two weeks ago.

Bank of Korea Governor Kim Choong Soo said he sees “downside risk to our 3 percent growth forecast” in testimony to lawmakers today. The central bank reduced its 2012 growth projection to 3 percent from a previous 3.5 percent on July 13. The nation’s economy probably expanded 0.5 percent in the second quarter from the previous three months when it grew 0.9 percent, according to 13 economists surveyed by Bloomberg News before official data due tomorrow. The Kospi Index fell 1.4 percent.

“There is plenty of money in the market waiting to be invested in bonds, and the governor’s comment about growth spurred concern the growth data tomorrow may be worse than expected,” said Lee Seung Hoon, a Seoul-based fixed-income analyst at Samsung Futures Inc.

The yield on the 3.25 percent bonds due June 2015 fell seven basis points, or 0.07 basis points to 2.76 percent at the close in Seoul, Korea Exchange Inc. prices show. Three-year debt futures rose 0.17 to 106.28 and the one-year interest-rate swap was little changed at 2.78 percent.

The won weakened 0.4 percent to 1,150.95 per dollar, according to data compiled by Bloomberg. It touched 1,153.45 earlier, the weakest since July 13. The currency’s one-month implied volatility, a measure of exchange-rate swings used to price options, jumped 80 basis points, or 0.80 percentage point, to 8.65 percent.

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

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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