Korean Bonds Decline as BOK Chief Nominee Curbs Rate-Cut Bets

South Korea’s government bonds fell for a second day after central bank governor nominee Lee Ju Yeol signaled that the chances of an interest-rate cut are slim.

The notes snapped a five-day advance yesterday as Lee said in a prepared statement to lawmakers that the Bank of Korea’s benchmark is “accommodative” and that households need to prepare for higher rates. Lee, who will appear before a parliament hearing tomorrow, is set to replace BOK chief Kim Choong Soo when his term ends on March 31. The monetary authority has held its key interest rate at 2.5 percent since May. Data showed U.S. factory output rose 0.8 percent in February, exceeding the highest forecast in a Bloomberg survey.

“It looks like expectations of a rate cut will vanish after the governor nominee speaks tomorrow,” said Park Dongjin, a fixed-income analyst at Samsung Futures Inc. in Seoul. “The U.S. factory output figures indicate recent weak data may have been a temporary result of harsh weather.”

The yield on the 3.375 percent notes due September 2023 rose one basis point to 3.52 percent at the close in Seoul, Korea Exchange Inc. prices show.

Data in the past month showed sales of previously owned U.S. homes dropped in January to the lowest level in more than a year and consumer confidence fell more than forecast in February.

The won weakened 0.2 percent to 1,069.20 per dollar in Seoul, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 36 basis points, or 0.36 percentage point, to 7.39 percent.

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