South Korea’s 10-year bonds rose for a fourth week, the longest rally since January, as the central bank cut its economic forecasts and joined regional counterparts in leaving interest rates unchanged.
Government bond yields sank to records after the Bank of Korea kept its benchmark rate at 1.75 percent Thursday, with one board member calling for a reduction, and cut its 2015 forecasts for gross domestic product growth and inflation. Australia and India also held borrowing costs after lowering them earlier this year, and Japan maintained its unprecedented asset purchases.
The yield on the 3 percent notes due September 2024 fell three basis points, or 0.03 percentage point, this week to 2.06 percent as of the 3 p.m. close in Seoul, Korea Exchange prices show. The 10-year yield declined two basis points Friday and reached the lowest in data compiled by Bloomberg since 2000. The three-year yield was little changed from April 3 at 1.72 percent, after reaching a record 1.71 percent Thursday.
“Expectations for another rate cut are gathering steam,” said Moon Hong Cheol, a Seoul-based fixed-income analyst at Dongbu Securities Co. “That’s putting pressure on the long-term yields as short-term yields are too low.”
The won was little changed this week at 1,092.68 a dollar, data compiled by Bloomberg show. The currency was steady on Friday, after erasing an earlier loss of as much as 0.4 percent.
South Korea’s economy will expand 3.1 percent in 2015, less the 3.4 percent growth projected in January, the BOK said in a statement Thursday. Consumer prices will rise 0.9 percent compared with an earlier estimate of 1.9 percent.
The U.S. Treasury criticized South Korea’s currency intervention, which appears “to have substantially increased” in December and January, according to a semiannual report on foreign-exchange policies. South Korea has no plan to change its approach of conducting smoothing operations when there are large price swings, said a BOK official in Seoul who asked not to be named, citing the central bank’s internal policy.