Won Forwards Advance as North Korea Invited to Talks; Bonds Gain

Won forwards advanced after the U.S. agreed to work with China, Japan and South Korea to lure North Korea back into nuclear talks. Government bonds rose.

At the end of his Asian tour, Secretary of State John Kerry left the door open for a U.S. meeting with the North Korean dictator Kim Jong Un. Foreign investors net-sold $3.2 billion worth of stocks this year as Kim’s regime repeated warnings of missile strikes and nuclear tests. The timeframe for a North Korean missile launch is until April 15, the South’s defense ministry said last week. Today marks the birth anniversary of the North’s founder, Kim Il Sung.

“Won movements are likely to be limited as long as the North Korea factor remain a potential risk,” said Jeon Seung Ji, analyst at Samsung Futures Inc. in Seoul. “Foreign investors’ repatriation of dividend payments from their stock investment is also likely to push the won lower, while exporters’ dollar sales will limit further declines in the won.”

Twelve-month non-deliverable forwards gained 0.5 percent to 1,143,20 per dollar at 10:25 a.m. in Seoul, according to data compiled by Bloomberg. The contracts are settled in dollars. In the spot market, the won rose 0.2 percent to 1,127.70, the data show. One-month implied volatility in the won, a measure of expected moves in the exchange rate used to price options, fell 10 basis points, or 0.1 percentage point, to 9.40 percent.

The yield on the 2.75 percent government notes due March 2018 fell one basis point to 2.76 percent in Seoul, according to prices from Korea Exchange Inc. The cost to lock in borrowing costs for one year using interest-rate swaps was little changed to 2.69 percent, data compiled by Bloomberg show.

Tensions on the Korean peninsula have heightened since February, when North Korea ran an underground nuclear-weapon test in defiance of United Nations Security Council resolutions. Kim’s regime has threatened war against the U.S. and South Korea over UN sanctions enacted after the Feb. 12 blast.

North Korea still spurns overtures by its southern neighbor as “empty shell” efforts without content, reported the Korean Central News Agency, the regime’s vehicle to communicate with the world.

Before it's here, it's on the Bloomberg Terminal.