South Korean Bonds Gain as Ukraine Tensions Escalate; Won Falls

South Korea’s government bonds advanced as heightening tensions between Russia and western nations over Ukraine prompted investors to seek safer assets.

Russian President Vladimir Putin yesterday ordered restrictions on food and agricultural imports from countries that have imposed or supported sanctions against his country. South Korea’s finance ministry, which cut its annual growth forecast last month, said in a report today the recovery is fragile. The won reversed earlier gains as Asian currencies fell after Australia’s jobless rate reached a 12-year high.

The yield on notes due June 2017 fell one basis point, or 0.01 percentage point, to 2.53 percent at the close in Seoul, Korea Exchange Inc. prices show, while that on the March 2024 bonds declined two basis points to 3.09 percent. Foreigners were net buyers of three-year debt futures after selling 11,303 more contracts than they bought yesterday, the most since April 3.

“The stand-off between Russia and western countries is supporting demand for safer assets,” said Kim Young Jung, a Seoul-based fixed-income analyst for Woori Futures Co. “We’re also seeing a rebound after yesterday’s sell-off of South Korea’s bond futures by foreign investors.”

The Bank of Korea holds its monetary policy meeting on Aug. 14, with all four economists surveyed by Bloomberg forecasting it will lower benchmark borrowing costs to 2.25 percent from 2.50 percent. The government cut its growth estimate to 3.7 percent from 3.9 percent on July 24.

The won weakened 0.4 percent to 1,037.49 per dollar at the close, according to data compiled by Bloomberg. It earlier strengthened as much as 0.3 percent. The Bloomberg JPMorgan-Asia Dollar Index, which tracks the region’s 10 most-active currencies, fell 0.1 percent. One-month implied volatility, a gauge of expected swings in the exchange rate used to price options, fell two basis points to 6.87 percent.

“Australia’s jobs data reversed market sentiment and investors are unwinding their short positions on the dollar,” said Kim Dong Wook, a Seoul-based currency dealer at Kookmin Bank. A short position is a bet an asset will drop in value.

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