Korea Bond Yield Rises to Five-Month High on Economy Optimism

South Korea’s bonds fell, pushing the three-year yield to the highest level since June, as data showing the economy is improving increased demand for riskier assets. The won climbed for the second day.

Industrial output increased 3 percent in October from a year earlier after a 3.9 percent drop in September, official figures showed Nov. 29. A reduction of stimulus by the Federal Reserve may lead to higher interest rates, Bank of Korea Governor Kim Choong Soo said at a meeting with non-bank financial companies today. Tapering won’t threaten the stability of South Korea’s financial system, he added. Foreign investors bought local stocks for the sixth day today, the longest run of net purchases since Oct. 30, according to exchange data.

“Korea’s industrial production showed an improvement even when external factors including Fed-tapering concerns added to uncertainties,” said Park Dongjin, a fixed-income analyst at Samsung Futures Inc. in Seoul. “That will play unfavorably for long-term bonds, and a steepening of the yield curve is expected between three-year and 30-year notes.”

The yield on the 2.75 percent sovereign bonds due June 2016 increased four basis points, or 0.04 percentage point, to 3.04 percent in Seoul, according to Korea Exchange Inc. prices. That’s the highest level since June 24. The 30-year yield rose four basis points to 4.04 percent. South Korea sold 1.78 trillion won ($1.68 billion) of three-year sovereign bonds and 650 billion won of 30-year notes today.

Inflation, Exports

The nation’s consumer prices climbed 0.9 percent in November from a year earlier, trailing the median estimate of a 1 percent gain in a Bloomberg survey of economists, according to data released today. Exports rose 0.2 percent while imports fell 0.6 percent, the Trade Ministry said in an e-mailed statement yesterday. A measure of manufacturing rose to 50.4 in November after a gain to 50.2 in October, according to HSBC and Markit Economics data released today.

The government will encourage state-run companies to finance their dollar needs from the domestic market as there is abundant greenback liquidity, Yoon Tae Sik, director of the Finance Ministry’s international finance division, said in a Nov. 29 interview.

The won rose 0.1 percent to 1,057.17 per dollar, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 11 basis points to 5.52 percent.

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