Korea Bonds Rally, Won Drops as Central Bank Flags Recovery Risk

South Korea’s government bonds rallied, pushing the three-year yield down by the most in five months, as the nation’s central bank said a strong won will have an adverse impact on growth.

The Bank of Korea held its benchmark rate at 2.5 percent, as forecast by all 19 economists in a Bloomberg survey. Economic recovery has shown signs of slowing as a ferry disaster in April damped consumption, the monetary authority said in a statement, flagging increased currency fluctuations as a risk. The won has risen more than 11 percent in the past year, the most among 31 major exchange rates tracked by Bloomberg. Exports unexpectedly dropped in May from a year earlier while consumer sentiment fell to an eight-month low.