Korean Bonds Snap Two-Day Gain as Stimulus Seen Boosting Supply

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South Korea’s government bonds fell for the first time in three days amid speculation the government’s fiscal stimulus will boost debt issuance.

The Finance Ministry plans to sell 7.75 trillion won ($6.9 billion) of bonds in July, 9.9 percent more than in June, according to a statement Tuesday after markets closed. The increase was scheduled before a spending plan of more than 15 trillion won was unveiled June 25. The government aims to submit a supplementary budget to parliament on July 6, Yonhap News reported Wednesday, citing Finance Minister Choi Kyung Hwan.

The yield on the sovereign notes due June 2025 rose two basis points to 2.47 percent in Seoul, Korea Exchange prices show. The three-year yield also climbed two basis points to 1.81 percent.

“Concerns about further increases in debt issuance persist after the government proposed an extra budget,” said Ahn Soo Jin, a Seoul-based fixed-income trader at Busan Bank Co.. “Traders are cautious about buying aggressively, and neutral or sell positions are more likely until the uncertainty about supply clears.”

ING Groep NV is considering raising its year-end yield forecast from 2 percent to reflect an expected increase in bond issuance, the Dutch lender said in a note Wednesday.

Finance Minister Choi said last month the size of the supplementary budget, which is part of the stimulus package, will be decided after analyzing the impact of the Middle East Respiratory Syndrome on South Korea’s economy.

The won fell 0.2 percent to 1,117.59 a dollar, data compiled by Bloomberg show. The currency has weakened 9.5 percent versus the greenback in 12 months, while rising 9.4 percent against the yen.

Exports fell for a sixth month in June, the Trade Ministry reported Wednesday, amid sluggish overseas demand and as the won’s strength versus the yen eroded the competitiveness of South Korean goods. Consumer prices rose 0.7 percent in June from a year earlier, Statistic Korea said, matching the median estimate in a Bloomberg survey.

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