South Korea’s bonds advanced this week, with the three-year yield dropping the most since 2013, as disappointing factory data added to speculation the central bank will cut interest rates further.
Industrial output fell 2.7 percent in April from a year earlier, worse than the 0.5 percent decline estimated in a Bloomberg survey, official data showed Friday. Manufacturers’ business confidence slipped to a four-month low in June, according to a Bank of Korea statement. Uncertainties in South Korea’s growth path are rising, BOK Governor Lee Ju Yeol said Tuesday. The won posted its biggest weekly loss since March.
“The resumption in expectations of further easing” drove yields lower, said Gao Qi, a Singapore-based strategist at Royal Bank of Scotland Group Plc. “There could be another rate cut in the coming meetings, which could be the last one this year.”
The yield on sovereign notes due December 2017 decreased 13 basis points, or 0.13 percentage point, to a one-month low of 1.75 percent in Seoul, Korea Exchange prices show. That’s the biggest weekly drop for a benchmark three-year note since June 2013, data compiled by Bloomberg show. The rate fell five basis points on Friday.
The monetary authority, which next meets on June 11, held its policy rate at a record low of 1.75 percent in April and May after lowering it three times since August. ING Groep NV sees the BOK cutting the benchmark again in July, Prakash Sakpal, its Singapore-based economist, wrote in a note Friday.
The won weakened 1.6 percent this week and 0.2 percent on Friday to 1,108.19 a dollar, data compiled by Bloomberg show. The currency retreated 3.2 percent in May, the most in six months, making it the worst performer in Asia, excluding Japan.
The yen’s slide to a 12-year low is eroding South Korea’s export competitiveness and risks exacerbating a currency war. The Korea International Trade Association on Thursday called for policy makers in Seoul to steady the exchange rate, while a finance ministry official said Friday that South Korea is prepared to intervene if yen weakness persists.