South Korea Bonds Post Biggest Weekly Loss Since June; Won Gains

South Korean bonds had the biggest weekly loss in more than two months on concern a U.S. economic recovery will prompt the Federal Reserve to taper stimulus that has fueled emerging-market inflows. The won rose.

U.S. payroll figures today may add to signs of an improving jobs market after reports yesterday showed service industries grew at the fastest pace in eight years and jobless benefit claims fell more than economists predicted. The Fed will weigh the data when it meets this month. Global investors pulled 2.1 trillion won ($1.9 billion) from South Korean debt in August, while they bought 1.5 trillion won more local shares than they sold, the Financial Supervisory Service said yesterday.

The yield on South Korea’s 2.75 percent sovereign notes due June 2016 rose 13 basis points, or 0.13 percentage point, this week to 3.01 percent, the biggest increase in three-year rates since the five days through June 21, Korea Exchange Inc. prices show. It climbed two basis points today.

“Ahead of the U.S. jobs data, foreign investors sold bonds and won-denominated assets leaving Korean markets vulnerable again to the possible Fed tapering,” said Park Dongjin, a fixed-income analyst at Samsung Futures Inc. in Seoul, wrote in a research note today. “In contrast, overseas fund inflows to the stock market are solid.”

Foreign investors were net buyers of South Korean shares today, adding to $2.3 billion of purchases in the past 10 days, exchange data show.

Won Climbs

The won advanced 1.6 percent this week to 1,092.93 per dollar in Seoul, the biggest gain since the period ended July 12, according to data compiled by Bloomberg. It strengthened 0.5 percent today.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 34 basis points this week to 8.3 percent. It fell eight basis points today.

The number of workers on nonfarm payrolls in the U.S. probably increased 180,000 in August, compared with a gain of 162,000 for July, according to the median of 94 economists’ estimates compiled by Bloomberg. The Fed’s next meeting will be held Sept. 17-18, with 65 percent of economists surveyed by Bloomberg last month predicting a reduction in its record asset-purchase program.

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