South Korean Bonds Erase Gains on Bets BOK Will Hold Policy Rate

  • Foreign investors turn net sellers of 10-year bond futures
  • Won rebounds to close 0.2% higher; Kospi stock index falls

South Korea’s sovereign bonds erased gains on bets the Bank of Korea will refrain from reducing its main interest rate from a record low.

The notes had advanced earlier as concern about weakening consumer demand in China, the nation’s biggest export market, prompted investors to favor the relative safety of debt. Foreigners sold more 10-year bond futures than they bought, prompting a retreat in similar-maturity debt. The BOK will keep its policy rate at 1.5 percent on Thursday, according to 15 of 17 economists surveyed by Bloomberg. Two see a cut to 1.25 percent.

"There was a retreat as foreign investors positioned themselves for the BOK to remain on hold tomorrow,” said Moon Hong Cheol, a fixed-income analyst at Dongbu Securities Co. in Seoul. “The central bank is likely to sound hawkish."

The 10-year yield closed little changed at 2.14 percent in Seoul, after falling as low as 2.10 percent, Korea Exchange prices show. The yield on notes maturing in June 2018 rose two basis points to 1.66 percent.

Foreign investors sold more 10-year bond futures than they bought for the first time in three days, according to Korea Exchange data. They net sold 11,065 contracts of three-year bond futures, the most since Aug. 5.

The won rose 0.2 percent to 1,147.05 a dollar, data compiled by Bloomberg show. The currency has weakened 4.9 percent this year. The Kospi index of shares declined for a second day after China on Tuesday reported an 11th monthly drop in imports.

South Korea’s consumer spending is improving as a festive shopping campaign called Korea Black Friday leads a recovery in domestic demand, Finance Minister Choi Kyung Hwan said at a meeting in Seoul Wednesday.

The BOK cut its 2015 economic growth forecast to 2.8 percent from 3.1 percent in July and will review its outlook on Thursday. South Korea’s jobless rate fell to 3.5 percent in September from 3.6 percent a month earlier, Statistics Korea said in a statement Wednesday.

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