South Korean Bonds Drop on Signs Growth Picked Up Last Quarter

  • GDP rose 2.4%, Bloomberg survey shows before data due Friday
  • Foreigners net sellers of debt futures as rate-cut bets fade

South Korean government bonds fell for a third day on signs growth picked up last quarter and the central bank will refrain from cutting interest rates again this year.

The economy expanded 2.4 percent in the three months through September from a year earlier, compared with 2.2 percent in the previous period, according to the median estimate in Bloomberg survey before data due Friday. Foreign funds were net sellers of Korean bond futures for the fourth day in a row. The central bank held its policy rate at a record low of 1.5 percent last week following reductions in March and June.

The yield on the notes due June 2025 rose one basis point to close at 2.11 percent in Seoul, Korea Exchange prices show. It’s up four basis points this week. The three-year yield climbed one basis point to 1.65 percent.

“Bond investors are pricing in a pickup in growth in the third quarter and less chance of a BOK cut,” said Shin Eol, a fixed-income analyst at Hyundai Securities Co. in Seoul, who forecasts borrowing costs will be left unchanged through year-end. "Foreign investors are leading the selling in bonds."

The monetary authority lowered its 2015 growth forecast to 2.7 percent from 2.8 percent at its policy meeting on Oct. 15. That’s more optimistic than the 2.4 percent median estimate in a Bloomberg survey.

The won weakened 0.1 percent to 1,132.38 a dollar, according to data compiled by Bloomberg. The currency rose to a three-month high of 1,120.61 on Monday, the strongest level since July 3, and has rallied 4.7 percent this month in the best performance in Asia after Indonesia’s rupiah.

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