South Korean 10-Year Bond Yield Falls to Record on Haven Demand

  • Market instability likely to continue for now, BOK's Lee says
  • Nation's exports headed for a 13th month of contraction

South Korea’s bonds rose, pushing the 10-year yield to a record low, as a resumption in oil’s decline and falling stocks drove demand for the relative safety of government debt.

Governor Lee Ju Yeol said market instability is likely to continue and called for “preemptive measures” at a meeting Thursday, the Bank of Korea said in a statement. The Kospi index of shares reversed gains and fell to the lowest level since August, tracking a drop in Chinese shares and Brent crude.

The yield on the bonds due December 2025 declined two basis points to close at 1.995 percent, the lowest on record for a benchmark of that maturity, Korea Exchange prices show. The three-year yield fell one basis point to 1.62 percent. The Kospi index of shares dropped 0.3 percent after being up as much as 0.8 percent.

"The risk-off pattern is repeating, supporting relatively safer bonds," said Shin Eol, a fixed-income analyst at Hyundai Securities Co. in Seoul, who recommends buying long-term debt. "It’s mostly external risks -- the rout in global stock markets and falling oil -- that’s driving bonds higher. The trend will continue at least until the end of this month."

Exports decreased 8.9 percent in the first 20 days of January from a year earlier and are set to contract for a 13th month, according to customs data released Thursday. The nation needs to innovate to create growth as the economy faces external conditions that “aren’t easy,” Finance Minister Yoo Il Ho said in Seoul on Thursday after China, its biggest trade partner, reported gross domestic product increased at the slowest pace in 25 years.

The won closed unchanged at 1,213.82 a dollar after rising as much as 0.6 percent earlier, according to data compiled by Bloomberg. The currency has fallen 3.4 percent this year in the worst performance in Asia.

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