South Korean Bonds Rally as Fed Rate Increase Eases Uncertainty

  • Yield on 10-year sovereign securities falls to six-week low
  • Around a third of analysts see Korean rate cut in first half

South Korean bonds advanced, pushing the 10-year yield to a six-week low, after the Federal Reserve proceeded with an expected interest-rate increase and on speculation the Asian nation will cut borrowing costs.

The Federal Open Market Committee raised its benchmark rate by 25 basis points, the culmination of a yearlong effort to prepare markets for the first increase in almost a decade, with Chair Janet Yellen promising a gradual tightening of policy. Korea’s government will utilize “all capacity” to achieve 3 percent real growth and 5 percent nominal growth next year, Finance Minister Choi Kyung Hwan said in Seoul on Wednesday, while around a third of analysts surveyed by Bloomberg see a rate cut in the first half of 2016.

“Uncertainty has dissipated after the FOMC meeting and there has been pent-up demand to buy the longer tenors," said Park Dongjin, a fixed-income analyst at Samsung Futures Inc. in Seoul. “Market expectations about a rate cut are definitely there."

The yield on the 10-year bonds fell six basis points to 2.17 percent as of 3:45 p.m. in Seoul, Korea Exchange prices show. That’s the lowest level for a benchmark of that maturity since Nov. 5. The three-year yield declined two basis points to 1.73 percent.

The Bank of Korea has cut its benchmark interest rate four times since August 2014 to a record 1.5 percent. Seven of 24 analysts see it lowering the rate by 25 basis points or more by the end of June, a Bloomberg survey shows.

Foreign investors were net buyers of Korean stocks for the first time in 12 days, and have pulled $2.3 billion from the equities this month, exchange data show.

The won fell 0.3 percent to 1,180.10 a dollar, data compiled by Bloomberg show. That took its decline this month to 1.9 percent, the most in Asia along with the offshore yuan.

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