Korean Won, Bonds Drop as U.S. Jobs Data Fuel Fed Rate-Rise Bets

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South Korea’s won and government bonds fell for a second day after U.S. data supported bets the Federal Reserve will increase interest rates, damping risk appetite.

Demand for emerging-market assets waned as a private survey showed American companies increased payrolls by the most in six months in June and another report showed manufacturing accelerated in the world’s largest economy. The prospect of Greece leaving the euro has also weighed on South Korea’s currency and debt markets, and bonds have declined on concern issuance will be increased to fund extra fiscal spending.

The won fell 0.7 percent to close at 1,125 a dollar in Seoul, data compiled by Bloomberg show. The yield on sovereign notes due June 2025 rose six basis points to 2.53 percent, Korea Exchange prices show, and the three-year yield climbed two basis points to 1.83 percent.

“A weaker won will discourage foreign investors from buying local-currency debt,” said Kim Moon Il, an analyst at Eugene Investment & Securities Co. in Seoul. “The uncertainty about the likely amount of new issuance is also hurting bonds.”

South Korea needs to monitor risks related to Greece’s debt crisis and act against potential destabilizing factors in the financial market, Finance Minister Choi Kyung Hwan said in a meeting in Seoul Thursday. The government will swiftly deploy stimulus measures to cope with impact of Middle East Respiratory Syndrome on the economy, he said.

Bond Supply

Choi unveiled a stimulus package of more than 15 trillion won ($13.3 billion) on June 25 that will partly be funded by an increase in debt sales. The government aims to submit a supplementary budget to parliament on July 6, Yonhap News reported Wednesday, citing the finance minister.

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, was steady Thursday after a two-day rise. U.S. companies added 237,000 jobs in June, figures from the ADP Research Institute showed Wednesday, and the Institute for Supply Management’s factory index had the best reading in five months.

South Korea’s current account recorded surplus for a 39th straight month in May, the Bank of Korea reported Thursday. The government raised its 2015 forecast for excess in the broadest measure of trade to $94 billion from $82 billion on June 25, while the central bank in April predicted a record $96 billion.

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