South Korean Bonds Rise as Government Unveils MERS Stimulus Plan

South Korea’s sovereign bonds rose as the government unveiled a spending plan to mitigate the economic impact of a deadly virus that’s sapped consumption.

The Finance Ministry cut its 2015 growth forecast and announced fiscal stimulus of more than 15 trillion won ($13.5 billion) on Thursday. The package will include a supplementary budget, the size of which will be decided after analyzing the impact of the Middle East Respiratory Syndrome, Finance Minister Choi Kyung Hwan said. A consumer-sentiment gauge dropped in June to the lowest since December 2012, central bank data showed.

The yield on notes due June 2018 fell two basis points to close at 1.80 percent, Korea Exchange prices show. The 10-year yield declined one basis point to 2.47 percent.

“While the exact size of extra budget wasn’t announced, the overall package was within market expectations,” said Seo Hyang Mi, a fixed-income strategist at HI Investment & Securities Co. in Seoul, who recommends selling short-term bonds and buying longer-dated securities. “We expect bond supply to increase by about 10 trillion won, which won’t create a glut.”

Additional bond issuance will be needed to fund the supplementary budget, Choi said at a briefing Thursday.

The median estimate in the Bloomberg survey was for a supplementary budget of 20 trillion won, or 1.4 percent of last year’s gross domestic product. Predictions ranged from 10 trillion won to as much as 25 trillion won.

The won fell 0.2 percent to 1,110.20 a dollar in Seoul, data compiled by Bloomberg show. The currency’s three-day drop is the biggest since June 8 and it has declined 1.7 percent in 2015.

South Korea’s government cut its outlook for growth in 2015 to 3.1 percent and lowered its inflation projection to 0.7 percent. The impact of MERS will continue even if the virus stops spreading, MoneyToday cited Finance Minister Choi as saying in a meeting with lawmakers.

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