Korean Bonds Gain as Bernanke Eases Tapering Concerns; Won Falls

South Korea’s bonds rose, pushing the three-year yield to the lowest in a week after the Federal Reserve calmed concern about a possible cut in its asset-buying program. The won fell as overseas investors sold local shares.

The U.S. central bank will respond to economic data and may even increase its purchases if indicators don’t meet its expectations, Chairman Ben S. Bernanke told the House Financial Services Committee yesterday. His comments in May and June that the Fed may taper the program, which has driven emerging-market inflows, sparked a slide in Asian currencies and debt.

The yield on the 2.75 percent government notes due June 2016 fell three basis points to 2.86 percent in Seoul, the lowest since July 11, according to Korea Exchange Inc. prices. The won dropped 0.4 percent to 1,126.18 per dollar, according to data compiled by Bloomberg.

“The market took Bernanke’s testimony as dovish, easing concern that the tapering is imminent, which lifted market sentiment,” said D.J. Park, a fixed-income analyst at Samsung Futures Inc. in Seoul. “Investors are not aggressively buying as they may be still interpreting his comments.”

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 18 basis points, or 0.18 percentage point, to 8.18 percent.

Overseas investors sold more South Korean shares than they bought for the first time in six days today, exchange data show.

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