Korea Government Bonds Rally as Choi Pledges Expansionary Policy

South Korea’s sovereign bonds rose as Finance Minister Choi Kyung Hwan said polices will remain expansionary until they bear fruit, fueling rate-cut bets.

Choi told lawmakers today the nation risks a slump like Japan’s unless it pursues aggressive policies, Yonhap Infomax reported. He said last week the official 2014 growth projection of 3.9 percent needs to be lowered by more than 0.2 percentage point. President Park Geun Hye asked her cabinet yesterday to deploy “all measures” to boost Asia’s fourth-largest economy, adding that the revised outlook will be released July 24.

The yield on the notes due June 2017 declined five basis points, or 0.05 percentage point, to 2.47 percent at the close in Seoul, exchange data show. That’s the lowest for a benchmark three-year bond since May 2013. The yield on debt maturing March 2024 fell two basis points to 2.97 percent.

“With Choi repeatedly calling for policy measures to boost growth, investors have accepted a 25 basis point cut in interest rates as a given,” said Moon Hong Cheol, a Seoul-based fixed-income analyst at Dongbu Securities Co. “Some are even betting a 50 basis point cut is possible, and a lot of attention will be on the government’s revised outlook and policy measures tomorrow.”

The Bank of Korea held its benchmark seven-day repurchase rate unchanged at 2.5 percent for a 14th month on July 10. Policy makers next meet on Aug. 14.

The won rose for a third day as exchange data showed overseas funds bought more local equities than they sold for a seventh day. The currency gained 0.1 percent to 1,023.78 per dollar in Seoul, data compiled by Bloomberg show. It reached 1,021.84 earlier, the strongest level since July 15.

One-month implied volatility in the won, a gauge of expected swings in the exchange rate used to price options, climbed two basis points to 5.52 percent.

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