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Korean Won Climbs to 11-Month High, Bonds Decline on ECB Pledge

Oct. 5 (Bloomberg) -- South Korea’s won climbed to an 11-month high and government bonds fell after the European Central Bank reiterated that it is prepared to start buying sovereign debt in the euro region.

The central bank left its benchmark interest rate at a record-low 0.75 percent yesterday and ECB President Mario Draghi said bond buying can start once a member state requests such action and agrees to conditions. The Kospi index rose 0.1 percent after Samsung Electronics Co., the world’s largest maker of televisions and mobile phones, reported profit that beat analyst estimates. Foreign funds raised holdings of South Korean bonds by 1.5 trillion won ($1.3 billion) and equities by 3.1 trillion won last month, official data show.

“Draghi’s comments made it comfortable for dealers to hold short positions on the dollar,” said Jude Noh, a Seoul-based chief currency trader at Suhyup Bank. A short position is a bet an asset will decline in value. “There is caution against government’s intervention, but no big actions spotted.”

The won appreciated 0.2 percent today to 1,111.40 per dollar and was little changed from a week ago in Seoul, according to data compiled by Bloomberg. The currency touched 1,109.60 earlier, the strongest level since Nov. 1. One-month implied volatility, a measure of exchange-rate swings used to price options, was little changed at 6.13 percent today.

South Korea’s foreign exchange reserves rose by the most in 11 months to $322 billion, a record-high, central bank data showed today.

The yield on the 2.75 percent notes due September 2017 climbed two basis points to 2.82 percent, Korea Exchange Inc. prices show. The rate touched 2.8 percent yesterday, the lowest on record for a benchmark five-year note, and fell four basis points this week. The one-year interest-rate swap added one basis point to 2.81 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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