South Korean Government Bonds Advance as Unemployment Rate Rises

South Korea’s government bonds rose as signs that recoveries in the local and U.S. economies aren’t strong enough increased demand for safer assets.

The unemployment rate in South Korea rose to 3.7 percent in April, official data showed today, more than the 3.4 percent median estimate in a Bloomberg survey. Prices of the nation’s imports and exports fell 2.5 percent from March, the central bank said today. U.S. retail sales rose 0.1 percent in April, according to a report yesterday, below the 0.4 percent gain forecast in a separate poll.

The yield on the 3.125 percent bonds due March 2019 dropped two basis points, or 0.02 percentage point, to 3.10 percent as of 10:04 a.m. in Seoul, Korea Exchange data show. The yield on the 3.5 percent notes due March 2024 declined two basis points to 3.43 percent. Overseas investors were set to sell more three- and 10-year debt futures than they will buy today.

“U.S. retail sales trailed estimates quite a bit, and the higher local unemployment rate is also supporting bonds,” said Kong Dong Rak, a Seoul-based fixed-income strategist at Hanwha Investment & Securities Co. “I had expected bond gains to be bigger but it seems foreigners selling bond futures is limiting increases.”

The won traded at 1,022.40 per dollar compared with 1,022.15 yesterday, according to prices compiled by Bloomberg. It touched 1,020.97 on May 9, the strongest level since August 2008, and its 4.1 percent rally this quarter is the best among 31 major currencies tracked by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 17 basis points to 5.64 percent.

The currency’s appreciation poses concerns for small companies as profits may decline, Yoon Sang Jick, minister for energy, trade and industry minister, said at a meeting with exporters, according to an e-mailed statement. The break-even exchange rate for manufacturers selling goods overseas is 1,045 won per dollar, according to a survey of 340 companies by the Korea International Trade Association cited in the statement.