Won Touches Six-Month Low on North Korea Threat; Bonds Steady
The South said its workers were banned today for the first time since 2009 from entering the jointly run Gaeseong industrial zone in the North, a move Unification Ministry spokesman Kim Hyung Suk described as “extremely serious.” North Korea said March 30 that a “state of war” exists with the South and warned it may shut Gaeseong following recent flights over the Korean peninsula by U.S. stealth bombers.
The won weakened as much as 0.5 percent to 1,123.34 per dollar, the lowest level since Sept. 20, before closing little changed at 1,117.60, according to data compiled by Bloomberg. The currency slid 0.3 percent yesterday after North Korea said it will restart the Yongbyon nuclear site, which was shut down in 2007 as part of an agreement reached in six-nation talks aimed at persuading the country to scrap its atomic weapons program.
“Tensions have escalated on the Korean peninsula after North Korea’s threats to resume its nuclear site, damping demand for the won,” said Son Eun Jeong, analyst at Woori Futures Co. in Seoul. “Some exporters may look to sell dollars from their income earned overseas.”
The Kospi Index dropped as much as 0.7 percent today as global funds sold more constituent stocks than they bought, as they have on all but two days in the past three weeks, exchange data show.
One-month implied volatility in the won, a measure of expected moves in the exchange rate used to price options, gained 15 basis points, or 0.15 percentage point, to 7.99 percent. The Finance Ministry said today it may strengthen existing measures, including limit on banks’ use of currency forwards, to curb volatility.
U.S. Secretary of State John Kerry said yesterday it would be a “serious step” if North Korea violates its obligations by following through on a threat to restart nuclear facilities. Kim Jong Un, the communist state’s leader, said March 31 nuclear weapons development is a priority as the country ratcheted up tensions by repeating threats to attack the U.S.
The yield on South Korea’s 2.75 percent bonds due March 2018 was unchanged at 2.56 percent, according to prices from Korea Exchange Inc. The five-year yield reached 2.51 percent last week, the lowest it has been in Bloomberg data going back to 2000.
North Korea’s rhetoric doesn’t undermine South Korea’s credit fundamentals, according to Moody’s Investors Service. Geopolitical risk hasn’t had “material, adverse effects” on the South’s markets or economy, analysts Thomas J. Byrne and Steffen Dyck wrote in a report dated yesterday.
A central bank report today showed South Korea’s foreign- exchange reserves totaled $327.41 billion at the end of March, little changed from $327.40 billion a month earlier. The Finance Ministry said it will maintain the holdings at an “appropriate” level.
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