Won Gains After G-20 Vows to Fight Tapering Fallout; Bonds FallYewon Kang
South Korea’s won rose for a second day after global finance chiefs pledged to combat cross-border damage if the U.S. and Japan start rolling back stimulus. Government bonds fell.
Group of 20 nations will pursue “carefully calibrated and clearly communicated” policy moves, they said after a two-day meeting in Moscow. China and South Korea separately agreed on the need for global coordination to minimize “adverse spill-over” effects on other countries, such as rising interest rates and increasing volatility in capital flows, if the U.S. scales back stimulus.
“Concern on the Fed’s tapering effect has calmed and the G-20 outcome helped ease worries,” said Kim Do Hee, a Seoul-based currency trader at Australia & New Zealand Banking Group Ltd.
The won rose 0.3 percent to 1,118.75 per dollar in Seoul, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 47 basis points, or 0.47 percentage point, to 7.51 percent.
Fed Chairman Ben S. Bernanke said last week that the monetary authority’s $85 billion monthly bond purchases, which have driven the flow of funds to emerging markets, “are by no means on a preset course” and may be reduced or expanded according to economic conditions.
The central bank in China, South Korea’s largest export market, removed the lower limit on lending rates at its financial institutions last week in a move to address slowing growth and expand the role of markets. Foreign funds bought more South Korean shares than they sold today, after two days of net sales, exchange data show.
South Korea’s bond market has stabilized and demand for longer-term government notes has risen since Bernanke eased concerns about an imminent tapering, Kim Jin Myung, a director at the Finance Ministry’s treasury bureau, said by phone today.
South Korea sold 629 billion won ($562 million) of 20-year government bonds today at an average yield of 3.68 percent with a bid-to-cover ratio of 4.48 times. The Finance Ministry sold 700 billion won of 20-year notes last month with a bid-to-cover ratio of 2.116 times, the lowest since Bloomberg began compiling the data in July 2010.
The yield on the 2.75 percent government notes due June 2016 rose one basis point to 2.85 percent, according to Korea Exchange Inc. prices.