South Korean government bonds gained as central bank Governor Kim Choong Soo said monetary policy should stay “flexible” after data showed the economy grew less than projected in the third quarter. The won strengthened.
Kim also said authorities will try to ease volatility in the won if its movements are one-sided, according to the text of a speech delivered today in Seoul. Gross domestic product increased 0.1 percent in the three months through September from the previous quarter, compared with an October estimate of 0.2 percent, official data showed yesterday.
“Some investors combined the weak third-quarter GDP data with the governor’s comments, thinking ‘flexible monetary policy’ may mean another rate cut,” said Moon Hong Cheol, a fixed-income analyst at Dongbu Securities Co. in Seoul. “It looks like the comments offered some reason for investors who were waiting to buy bonds.”
The yield on the 2.75 percent notes due September 2017 fell two basis points, or 0.02 percentage point, to 2.93 percent at the close in Seoul, Korea Exchange Inc. prices show. The rate rose two basis points this week. The one-year interest-rate swap slipped two basis points today to 2.76 percent.
The Bank of Korea will leave its benchmark interest rate at 2.75 percent on Dec. 13, after cutting twice this year, according to seven of eight economists surveyed by Bloomberg. One predicts a 25 basis point reduction.
The Kospi index of shares closed at the highest level since Oct. 18 as overseas investors bought more of the nation’s stocks than they sold for a seventh day. The won appreciated as foreign funds sold the dollar to buy local equities, according to Jeon Seung Ji, a Seoul-based currency analyst at Samsung Futures Inc.
The currency advanced 0.1 percent today and for the week to 1,081.55 per dollar, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in exchange rates used to price options, declined 15 basis points today to 4.7 percent.