Korea Bonds Advance as Investors Await Economy Data; Won Gains

South Korea’s government bonds advanced before data that’s forecast to signal growth in Asia’s fourth-biggest economy is losing steam. The won rose.

An official report due Sept. 28 will show industrial output declined for a third month in August, while trade data scheduled Oct. 1 will show exports shrank 5.7 percent this month, according to separate Bloomberg surveys. Consumer confidence held at a seven-month low, the central bank said today. German Chancellor Angela Merkel and French President Francois Hollande disagreed over the weekend on a timetable to introduce joint oversight of the region’s banking sector.

“Bonds are being supported due to European issues, and the biggest focus for the market will be the factory output data,” said Lee Seung Hoon, a Seoul-based fixed-income analyst at Samsung Futures Inc. “Until the data are out, there’s not enough momentum to support bonds beyond the current level.”

The yield on the government’s 3.25 percent bonds due June 2015 fell one basis point, or 0.01 percentage point, to 2.80 percent in Seoul, Korea Exchange Inc. prices show. The one-year interest-rate swap slid two basis points to 2.87 percent. The Kospi index dropped as overseas funds sold more of the nation’s shares than they bought for a second day.

South Korea plans to cut its fiscal deficit next year to the smallest in six years, the Ministry of Strategy and Finance said in its budget proposal for 2013 released today. The government will sell 79.9 trillion won ($71 billion) of bonds in 2013, compared with 79.8 trillion won this year, according to a financial ministry official who declined to be identified as the official report is yet to be released.

The won advanced 0.1 percent to 1,119.45 per dollar, according to data compiled by Bloomberg. One-month implied volatility, a measure of exchange-rate swings used to price options, fell 19 basis points to 6.26 percent.

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