Won Gains for Second Day on U.S. Debt Talks Optimism; Bonds Rise

South Korea’s won rose for a second day, trading near an eight-month high, on signs of progress in talks to avoid a U.S. debt default, and as overseas investors pumped money into local equities. Government bonds rose.

President Barack Obama told Republicans at a White House meeting yesterday that he wants to raise the debt limit and end the partial government shutdown, now in its 10th day, said Representative Hal Rogers of Kentucky. Obama didn’t accept or reject a Republican plan as the two sides pledged to keep talking last night. South Korean Finance Minister Hyun Oh Seok said prolonged budget negotiations would hurt the U.S. and global financial systems.

“Speculation is increasing the budget talks will reach a deal, which may lift sentiment,” said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul. “Foreign inflows in local stocks are a strong support for the won.”

The won climbed 0.2 percent to 1,071.4 per dollar in Seoul, according to prices from local banks compiled by Bloomberg. It earlier strengthened to 1,068.82, near the eight-month high of 1,067.07 reached Oct. 7. It fell 0.1 percent for the week.

“The main reason behind the won’s fall this week was due to the concern that authorities may intervene in the market as the won hovers near 1,070 against the dollar,” Jeon said.

The currency’s exchange rate is determined by the market, and that’s desirable if there is no volatility, Finance Minister Hyun said in an interview in Washington yesterday. Foreigners were net purchasers of Korean stocks for a record 31st day, pumping more than $10 billion into the securities since the buying streak began on Aug. 23, exchange data show.

Record Surplus

South Korea’s current-account surplus is forecast to be a record $63 billion this year, more than a July estimate of $53 billion, according to a statement from Bank of Korea yesterday.

Bank of America is staying long on the won versus the dollar as the Korean currency remains underpinned by “very strong” current-account dynamics, according to a Bank of America Merrill Lynch research note released yesterday by Albert Leung, a strategist in Hong Kong.

The won’s one-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 34 basis points, or 0.34 percentage point, today and 32 basis points for the week to 6.84 percent.

The yield on South Korea’s 2.75 percent sovereign notes due June 2016 fell one basis point today to 2.86 percent, according to Korea Exchange Inc. prices. The rate rose three basis points this week.

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