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Korea 3-Year Bond Yield Retreats From 5-Month High; Won Advances

South Korea’s three-year bond yield retreated from a five-month high as investors waited for clues on when the U.S. will start to trim stimulus that has inflated emerging-market asset prices. The won strengthened.

U.S. employers hired 181,000 workers in November after adding 204,000 in October, according to a Bloomberg survey before data due Dec. 6. Federal Reserve officials have said they may reduce the $85 billion in monthly bond purchases in the “coming months” as the economy improves, according to minutes of their October meeting. Overseas investors were net buyers of three-year debt futures for a second day after a 24-day run of net sales. They cut about $380 million of their local share holdings today, exchange data show.

The yield on the 3 percent sovereign bonds due December 2016 fell one basis point, or 0.01 percentage point, to 3.02 percent in Seoul, according to Korea Exchange Inc. prices. The benchmark three-year yield touched 3.04 percent yesterday and on Dec. 2, the highest in five months.

“Investors are in a wait-and-see mode before the U.S. jobs data and foreign buyers of bond futures slightly support the bonds,” said Kim Young Jung, a fixed-income analyst at Woori Futures Co. in Seoul. “The U.S. economy is showing signs of recovery and, assuming the Fed tapering starts in March, the three-year yield is expected to rise to as much as 3.15 percent in the first half.”

ING Groep NV raised the year-end forecast for South Korea’s three-year government bond yield to 3.1 percent from 2.9 percent, Tim Condon, Singapore-based head of Asia research, wrote in a research note today. Pinebridge Investments has reduced its holdings of the country’s government debt as shrinking risk premiums spur profit-taking, Arthur Lau, head of fixed income in Hong Kong, said in an e-mail interview Nov. 26.

South Korea’s foreign reserves rose by $1.78 billion in November to a record $345 billion, Bank of Korea said in an e-mailed statement today.

The won rose 0.1 percent to 1,060.45 per dollar, data compiled by Bloomberg show. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped four basis points to 5.58 percent.

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