South Korea Bonds Advance as U.S., China Manufacturing Slows

South Korean bonds rose, pushing the five-year yield to the lowest since December, as reports showing slower manufacturing growth in the U.S. and China boosted demand for the relative safety of government debt.

The U.S. Institute for Supply Management’s factory index fell to 51.3, the lowest in eight months and below the most pessimistic forecast in a Bloomberg survey of economists, figures showed yesterday. China’s Purchasing Managers’ Index for manufacturing declined to a six-month low in January, according to a Feb. 1 report. Korean consumer prices rose 1.1 percent in January from a year earlier, matching the median estimate in a Bloomberg survey, official data showed today.

The yield on South Korea’s 3.25 percent government bonds due September 2018 fell four basis points, or 0.04 percentage point, to 3.18 percent, according to Korea Exchange Inc. prices. That’s the lowest level since Dec. 27. The three-year yield declined two basis points to 2.86 percent.

“The weak U.S. data made investors doubt whether the economy is on a recovery track, driving demand for safer assets,” said Park Dongjin, a fixed-income analyst at Samsung Futures Inc. in Seoul.

The won strengthened 0.1 percent to 1,083.74 per dollar at the close in Seoul, according to data compiled by Bloomberg. It fell by as much as 0.5 percent to 1,089.71 earlier, the weakest level since Sept. 11. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 26 basis points to 8.25 percent.

“There was some profit taking after the rise in the dollar against the won, and we also saw local exporters selling the greenback,” said Lee Eung Joo, a currency trader at Daegu Bank in Seoul.

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