Korean Won Rebounds, Government Bonds Fall on U.S Budget Talks

Nov. 19 (Bloomberg) -- South Korea’s won rebounded from a one-week low and government bonds fell on speculation the U.S. will succeed in avoiding the so-called fiscal cliff that threatens to derail the recovery in the world’s biggest economy.

President Barack Obama expressed confidence yesterday that he and Congress could reach a budget agreement to avoid the $607 billion of automatic spending cuts and tax increases scheduled to take effect next year. The Kospi index of shares advanced the most in almost two weeks. Bank of Korea Governor Kim Choong Soo said last week the central bank will work to curb excessive volatility in the won.

“Obama’s comments eased fiscal cliff concerns, recovering investment sentiment,” said Jude Noh, a Seoul-based chief currency trader at Suhyup Bank. “South Korean exporters selling the greenback also supported the won although there was speculation the government intervened” to stem gains in the currency, he said.

The won strengthened 0.5 percent to 1,086.98 per dollar at the close in Seoul, according to data compiled by Bloomberg. The currency fell 0.5 percent on Nov. 16, the biggest decline in two months. One-month implied volatility, a measure of exchange-rate swings used to price options, slid 28 basis points, or 0.28 percentage point, to 5.60 percent.

The yield on the government’s 2.75 percent bonds due September 2017 rose two basis points to 2.86 percent, Korea Exchange Inc. prices show. The one-year interest-rate swap was little changed at 2.77 percent.

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

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net