South Korean Bond Yield Jumps to Two-Week High on U.S. Data

South Korea’s government bonds fell, sending the 10-year yield to a two-week high, as a pickup in the U.S. services industry sparked a decline in Treasuries.

The Institute for Supply Management’s non-manufacturing index climbed to 56.3 in May, the most since August, figures showed yesterday. U.S. factory orders for April rose 0.7 percent from the previous month, beating the 0.5 percent gain forecast in a Bloomberg survey. South Korea’s economy expanded 3.9 percent in the first quarter from a year earlier, matching a previous estimate, the central bank reported today. Local markets were closed yesterday for regional elections and will be shut tomorrow for a public holiday.

The yield on the 3.5 percent sovereign notes due March 2024 advanced two basis points from June 3 to 3.39 percent at the close in Seoul, Korea Exchange prices show. That’s the highest since May 22. The benchmark 10-year yield touched 3.32 percent on May 29, the lowest since June 2013. In the U.S., the yield on similar-maturity securities reached 2.61 percent yesterday, the highest since May 14.

“It seems some investors thought the recent drop in South Korean yields was excessive and hard to justify,” said Park Donjin, a Seoul-based fixed-income analyst at Samsung Futures Inc. “The market’s focus has shifted to the positive economic data, but we need to wait and see if this will lead to an upward trend for yields.”

South Korea’s foreign reserves rose in May by $5.07 billion, the most since October, to a record $360.91 billion, central bank data showed today. The nation sold $1 billion of 30-year dollar bonds at 72.5 basis points over Treasuries and 750 million euros ($1.02 billion) of 10-year notes at 57 basis points above midswaps, the finance ministry said yesterday.

Won Gains

The won reversed earlier losses, appreciating 0.3 percent from June 3 to 1,020.45 per dollar at the close, prices from local banks compiled by Bloomberg show. It earlier weakened to as much as 1,025.88. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose six basis points, or 0.06 percentage point, to 5.66 percent.

“Investors that held long dollar positions expecting a strong U.S. currency seem to be unwinding bets, and also local exporters are selling dollars,” said Jahng Won, a Seoul-based currency trader for Shinhan Bank. A long position is a bet an asset will rise in value.

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