South Korea’s Won Advances, Bonds Decline as GDP Beats Estimates

The won appreciated and government bonds fell as a report showed the nation’s economy grew faster than analysts predicted.

Gross domestic product expanded 0.9 percent in the first quarter from the previous three months, official figures showed today, more than the 0.8 percent estimate in a Bloomberg News survey. North Korea is at a stage where it can conduct a surprise nuclear test at any time, South Korean Defense Ministry spokesman Kim Min Seok said at an April 22 briefing. U.S. President Barack Obama arrives in Seoul tomorrow.

While exporters will sell dollars as the month-end approaches, the won’s gains may be limited given the risk of atomic tests by North Korea, Hong Seok Chan, a Seoul-based currency analyst at Daishin Economy Research Institute in Seoul, wrote in a research note today.

The won advanced about 0.1 percent to 1,039.25 per dollar at the close in Seoul, data compiled by Bloomberg show. It touched 1,031.55 on April 10, the strongest since August 2008, and its 2.5 percent rally this month is the best among 11 Asian currencies tracked by Bloomberg.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 27 basis points, or 0.27 percentage point, to 6.53 percent.

Growth Concern

Overseas investors bought $481 million more local equities than they sold this week, exchange data show. The central bank will closely watch any impact of the Sewol ferry disaster on consumption and the economy, Bank of Korea Director General Jung Yung Taek said at a briefing today. The ship carrying hundreds of high school students sank on its way to the resort island of Jeju on April 16, with the death toll reaching 150 as of 6 p.m. in Seoul yesterday and 152 still missing.

The yield on the 3 percent government bonds due December 2016 increased one basis point to 2.89 percent, according to Korea Exchange data. The yield on 20-year notes also rose one basis point to 3.75 percent.

“The GDP figure is weakening bonds today,” said Moon Hong Cheol, a Seoul-based fixed income analyst at Dongbu Securities Co. “But investors are still concerned whether domestic spending will lose steam, especially after the ferry tragedy, and affect future growth.”

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