Korean Bond Yield Falls to Five-Week Low on Inflows: Won Steady

South Korean bonds rose, pushing the three-year yield to a five-week low, as overseas investors bought the nation’s debt before the Federal Reserve decides whether to start paring stimulus. The won was little changed.

Foreigners were net buyers of three-year bond futures for a third day and snapped a five-day sell-off in stocks, exchange data show. The Federal Open Market Committee starts a two-day meeting today at which it will begin tapering its $85 billion a month of asset purchases that have boosted inflows to emerging markets, according to 34 percent of economists surveyed on Dec. 6 by Bloomberg. That is up from 17 percent in a Nov. 8 poll.

“Foreign investors are buying bond futures before the FOMC meeting,” said Kim Young Jung, a fixed-income analyst at Woori Futures Co. in Seoul. “Because local investors are in a wait-and-see mode, the market has been more swayed by foreign funds.”

The yield on the 3 percent sovereign notes due December 2016 declined four basis points to 2.88 percent in Seoul, according to Korea Exchange Inc. prices. That’s the lowest level for a benchmark three-year security since Nov. 8. The 10-year yield fell four basis points, or 0.04 percentage point, to 3.60 percent.

Investors should hold Korean bonds, Tim Condon, head of Asia research at ING Groep NV, wrote in a research note today, The lender’s 3.8 percent year-end forecast for the 10-year yield is subject to downside risk, he wrote.

Producer Prices

Producer prices fell 0.9 percent in November from a year earlier, dropping for a 14th consecutive month, Bank of Korea said in a statement today. The nation’s current-account surplus for 2014 will probably shrink to $48 billion from this year’s estimated $69 billion, Dong-A Ilbo newspaper reported today, without citing any sources.

South Korea’s economy is showing signs of recovery as exports, hiring and corporate investment have risen recently, President Park Geun Hye said at a meeting with business leaders in Seoul today, according to the presidential house website.

The won was at 1,051.09 per dollar, compared with 1,051.54 yesterday, data compiled by Bloomberg show. The currency has strengthened 0.7 percent this month. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, declined four basis points to 6.76 percent.

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