Korean Five-Year Bond Yields at 7-Week Low Before Rate Review

South Korea’s five-year government bond yields were at the lowest level in seven weeks and the won gained before the central bank reviews interest rates this week.

The Bank of Korea will leave its seven-day repurchase rate at 2.75 percent when policy makers meet on Jan. 11, according to all but one of 14 analysts surveyed by Bloomberg. One forecast a 25 basis point cut, after similar moves at reviews in July and October. South Korea’s jobless rate held at 3 percent in December, the lowest it has been in data going back to 1999, as the number of employed people increased by 277,000, a government report showed today.

“Increased anxiety over the Bank of Korea’s rate decision due later this week is limiting moves of the bonds,” said Kyung Hee Jung, fixed-income strategist at Shinhan Investment Corp. in Seoul. “The Bank of Korea is likely to leave rates unchanged this month as there are some signs the economy is improving.”

The yield on South Korea’s 2.75 percent bonds due September 2017 was unchanged at 2.87 percent, the lowest since Nov. 21, according to Korea Exchange prices. The rate declined four basis points, or 0.04 percentage point, yesterday and is down 10 basis points for the year.

The won gained 0.1 percent to close at 1,061.60 per dollar at 3 p.m. in Seoul, according to data compiled by Bloomberg. It has strengthened 9.4 percent in the past 12 months and touched 1,060.50 on Jan. 7, the strongest level since August 2011.

Herd Behavior

Finance Minister Bahk Jae Wan said last week he was concerned about herd behavior in the foreign-exchange market and may introduce measures to curb won volatility. The central bank is unlikely to cut interest rates to stem the currency’s appreciation, Nomura Inc. said in a research note published today.

“A stronger Korean won is a reflection of improvements in global growth and the risk backdrop,” Nomura analysts including Kwon Young Sun, who is based in Hong Kong, wrote in the report. “The strong currency would hurt the economy only if it became substantially overvalued. Korean exporters can still enjoy price competitiveness.”

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