South Korean government bond yields snapped a five-day drop after the central bank governor nominee said people need to prepare for higher interest rates.
Households will on average be able to cope with a certain degree of rate increases as much of the debt is owed by high-income earners, Lee Ju Yeol said in a document submitted to parliament before a hearing on March 19. President Park Geun Hye nominated Lee, who worked at the BOK for 35 years, to take over from current chief Kim Choong Soo when his term ends on March 31. The Bank of Korea held the benchmark rate, unchanged since May, at 2.5 percent at its March 13 monetary review meeting.
“The market is trying to grasp what kind of person Lee is ahead of the hearing, and local reports seem to show him to be a hawkish, traditional central bank person,” said Kong Dong Rak, a fixed-income strategist at Hanwha Investment & Securities Co. in Seoul.
The yield on South Korea’s 3 percent government notes due December 2016 rose two basis points to 2.85 percent at the close in Seoul, Korea Exchange Inc. prices show. The securities yielded 2.83 percent on March 14, the lowest since Dec. 27.
The won gained 0.5 percent, the most in more than a week, to 1,067.39 per dollar, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, advanced 10 basis points, or 0.1 percentage point, to 7.74 percent.
China’s yuan can now trade as much as 2 percent on either side of a daily reference rate, from the previous 1 percent, the People’s Bank of China said on its website on March 15. China is South Korea’s largest export market. The PBOC raised the yuan’s fixing by 0.04 percent to 6.1321 per dollar today.
The Federal Open Market Committee, which begins a two-day meeting tomorrow, will cut its monthly bond purchases by $10 billion, according to the median forecast in a Bloomberg survey.
“Yuan fixing was stronger than expected, and this prompted investors to stop their long positions on the dollar,” said Cho Young Bok, a Seoul-based currency trader at Daegu Bank. A long position is a bet an asset will rise.