South Korea Bond Yields Climb on Signs Rates on Hold; Won Rises

The yield on South Korea’s five-year bonds rose the most in three weeks on speculation investors who were betting interest rates would fall sold debt after central bank Governor Kim Choong Soo signaled they may stay on hold.

Kim said yesterday that the 50 basis points of monetary easing last year were “very big,” Yonhap News reported. Fourteen of 18 analysts surveyed by Bloomberg forecast the benchmark seven-day repurchase rate will be left at 2.75 percent on May 9, while four predict a 25 basis-point reduction.

“As Kim gave a firm view about the legitimacy of interest rates on hold, market sentiment leaned toward the rate staying at the current level,” said Yoon Yeo Sam, a fixed-income analyst at Daewoo Securities Co. in Seoul. “Anticipation of the BOK’s interest-rate cut rose after the European Central Bank lowered interest rates last week and as the improvement in U.S. jobs data eased economic concerns.”

The yield on the 2.75 percent notes due March 2018 climbed 10 basis points to 2.62 percent in Seoul, the biggest increase since April 11, according to prices from Korea Exchange Inc. It reached a record low of 2.5 percent last week. The rate on 10-year securities rose seven basis points to 2.8 percent.

Bank of Korea has kept borrowing costs unchanged since October, defying pressure from the government for a reduction even as a weaker yen threatens to hurt exports.

Won Gains

South Korea’s won closed at an eight-week high as the U.S. employment numbers boosted optimism about a global economic recovery. A report on May 3 showed the jobless rate unexpectedly fell to a four-year low in the Asian nation’s second-biggest export market after China.

The won appreciated 0.3 percent to 1,094.48 per dollar in Seoul and earlier touched 1,092.29, the highest level since March 8, according to data compiled by Bloomberg. The currency gained 0.7 percent against the yen, taking the advance this year to 12.2 percent.

One-month implied volatility in the won, a measure of expected moves in the exchange rate used to price options, dropped 13 basis points, or 0.13 percentage point, to 6.86 percent.

South Korea’s foreign-exchange reserves rose to $328.8 billion as of the end of April, from $327.4 billion at the end of March, the Bank of Korea said in a statement today.

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