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Korea Bonds Rise, Won Falls, as Central Bank Signals Growth Risk

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Oct. 2 (Bloomberg) -- South Korea’s government bonds gained and the won retreated from an 11-month high after the central bank said risks to growth are increasing.

Inflation is likely to stay below 3 percent for a while, the Bank of Korea reported to the National Assembly, after earlier releasing data showing consumer prices rose 2 percent last month compared with a 12-year low of 1.2 percent in August. Reserve Bank of Australia cut borrowing costs today to the lowest level since 2009, raising concern policy makers in South Korea will follow suit on Oct. 11.

“The central bank’s report highlighting risks to growth triggered bond gains, and Australia cutting benchmark rates raised expectations for the Bank of Korea,” said Lee Seung Hoon, a Seoul-based fixed-income analyst at Samsung Futures Inc.

The yield on the 3.25 percent notes due June 2015 fell three basis points, or 0.03 percentage point, to 2.76 percent at the close in Seoul, Korea Exchange Inc. prices show. The rate earlier rose to 2.80 percent. The one-year interest-rate swap fell four basis points to 2.82 percent.

The central bank will release at 4 p.m. local time details of its Sept. 13 policy meeting, when it unexpectedly kept the benchmark interest rate unchanged.

The won weakened 0.1 percent from Sept. 28 to 1,112.68 per dollar in Seoul, according to data compiled by Bloomberg. It touched 1,110.55 on Sept. 28, the strongest level since Nov. 4. One-month implied volatility, a measure of exchange-rate swings used to price options, climbed five basis points to 6.08 percent.

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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