Korea Bonds Drop for Eighth Day as Rate-Cut Speculation Recedes

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South Korea’s 10-year bonds fell for an eighth day, pushing their yield to the highest level since January, as a brightening economic outlook curbs speculation the central bank will lower interest rates further.

President Park Geun Hye said this week the economy is showing signs of improvement thanks to adjustments in fiscal and monetary policies. The government plans to spend a record 375.4 trillion won ($347 billion) in 2015 and the Bank of Korea has cut borrowing costs three times since August, reducing its benchmark rate to a record-low 1.75 percent. The monetary authority’s next policy meeting is scheduled for May 15.

“The government’s stance on the economy is more optimistic than what the market was expecting, and this reduces the likelihood of an interest-rate cut,” said Kim Myoung Sil, a fixed-income analyst at KB Investment & Securities Co. in Seoul. “While there remains an expectation for monetary easing, bets for a rate reduction in May are receding.”

The yield on government debt due September 2024 increased six basis points, or 0.06 percentage point, to 2.54 percent, as of the 3 p.m. close in Seoul, Korea Exchange prices show. The eight-day losing streak for the notes is the longest since they began trading in November. Three-year bonds also retreated, pushing their yield up by five basis points to 1.95 percent, the highest since March 5. Local financial markets were shut Tuesday for a national holiday.

The won declined 0.1 percent to 1,080.20 a dollar, according to prices from local banks compiled by Bloomberg. It is still 1 percent stronger versus the greenback this year, trailing only Taiwan’s dollar among Asian currencies.

South Korea’s economy is on a recovery path and growth this year will be similar to the 3.3 percent expansion in 2014, Finance Minister Minister Choi Kyung Hwan said Sunday. Gross domestic product increased 0.8 percent in the first quarter from the preceding three months, when the economy expanded at a 0.3 percent pace that was the slowest since 2009, official data show.

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