Won Falls to One-Year Low on Fed Stimulus Concern; Bonds Drop

The won fell to a one-year low on concern a tapering of the Federal Reserve’s stimulus will reduce demand for emerging-market assets. Government bonds declined.

South Korean authorities will monitor markets and take steps to deal with the impact of the unwinding of U.S. policies, Yonhap News reported, citing comments by Finance Minister Hyun Oh Seok at a meeting with lawmakers today. The Dollar Index, which tracks the greenback against the currencies of six trade partners, rose 2.5 percent since June 18, the day before Fed Chairman Ben S. Bernanke signaled the central bank may reduce its bond-buying program this year and end it in 2014.

“The dollar remains strong globally since Bernanke’s comments last week,” said Park Hyun, a currency trader at Woori Bank Co. in Seoul. “The authorities’ comment to support the won was not strong enough to offset the globally strong dollar trend.”

The won fell 0.6 percent to 1,161.23 per dollar in Seoul, the weakest level since June 26, 2012, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose for a sixth day, increasing by 32 basis points, or 0.32 percentage point, to 13.06 percent.

Overseas investors sold more South Korean shares than they bought for a 12th day today, adding to $4.5 billion of net sales this month through June 21, exchange data show.

Tighter Monitoring

The current volatility is likely to affect bond markets and corporate funding, Financial Services Commission Chairman Shin Je Yoon said at a meeting today, according to an e-mailed statement. The government plans to tighten monitoring of banks’ liquidity and scale down its debt sales volumes in July, Vice Finance Minister Choo Kyung Ho said on June 23 in Seoul.

The Finance Ministry sold 700 billion won ($603 million) of 20-year sovereign notes with a bid-to-cover ratio of 2.116 times, Kim Suk, assistant director at the Finance Ministry’s treasury bureau, said by phone today.

The yield on the 2.75 percent government bonds due March 2018 rose 16 basis points to 3.42 percent, the highest level for a benchmark five-year note since June 29, 2012, prices from Korea Exchange Inc. show.

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