South Korea’s three-year government bonds rose for a second day as monetary easing in China signaled a weaker regional economy before the Bank of Korea reviews policy.
China, South Korea’s biggest overseas market, cut interest rates for the third time in six months Sunday after data showed its exports and imports slumped in April. While 15 of 17 analysts surveyed by Bloomberg predict the BOK will refrain from cutting borrowing costs on May 15, Australia & New Zealand Banking Group Ltd. said there’s a 40 percent possibility the central bank will do so following recent moves by its counterparts in Thailand, Australia and China.
The yield on the 2 percent sovereign notes due December 2017 fell three basis points, or 0.03 percentage point, to 1.88 percent as of the 3 p.m. close in Seoul, Korea Exchange prices show. The 10-year yield erased an earlier decline and finished two basis points higher at 2.46 percent.
“China’s effort to stimulate its economy increases the possibility of a BOK rate cut as worries over South Korea’s weak export growth are increasing,” said Seo Hyang Mi, a Seoul-based fixed-income analyst at HI Investment & Securities Co. “Short-term yields are especially falling after steep gains last week, which were seen as excessive.”
The 10-year note fell for nine days through May 7, pushing the yield to 2.56 percent, the highest since Jan. 8. The three-year yield reached 1.97 percent the same day, a level last seen in early March.
South Korean exports to China have fallen for the past three months. Finance Minister Choi Kyung Hwan on April 21 attributed the sluggish overseas sales to a slowdown in the world’s second-largest economy.
The won dropped 0.3 percent to 1,091.42 a dollar, data compiled by Bloomberg show. The currency has declined 1.8 percent this month.
The People’s Bank of China will reduce the one-year lending rate by 0.25 percentage point to 5.1 percent, and cut the one-year deposit rate by the same amount to 2.25 percent, effective Monday, the central bank said on its website Sunday.