Korean Bonds Rise as Investors Seen Reentering Market After Drop

  • Weak demand at sovereign auction pushed up yields on Monday
  • Household debt climbs to record in 3Q, BOK data show

South Korean sovereign bonds rose amid speculation investors took advantage of the biggest drop in more than a week on Monday to reenter the market.

Yields increased across the curve on Monday after the government missed its target at a 20-year note sale as the prospect of a Federal Reserve interest-rate increase next month curbed demand. Household debt, which the Bank of Korea said last week was one of the major risks to the financial system, rose to a record in the third quarter, the monetary authority reported on Tuesday.

“The initial selling in Korean bonds ahead of the Fed’s rate increase has settled for the time being," said Seil Lee, a fixed-income analyst at Daewoo Securities Co. in Seoul, who recommends buying longer-term notes. "The weak auction result pushed up yields and created room for buying.”

The 10-year yield fell two basis points to close at 2.28 percent in Seoul, after climbing four basis points on Monday, Korea Exchange prices show. The 20-year yield declined one basis point to 2.40 percent following a six basis-point increase yesterday.

The Finance Ministry sold 769 billion won ($667 million) of notes due 2035 on Monday, short of its 800 billion won goal. Household debt rose 34.5 trillion won to 1,166.04 trillion won last quarter, the biggest gain and the highest level in data going back to 2002.

The won strengthened 0.4 percent to 1,153.75 a dollar, according to data compiled by Bloomberg. It’s fallen 1.2 percent this month as foreign funds pulled a net $880 million from South Korean stocks in anticipation of a Fed rate increase.

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