Korean Bonds Drop After Treasuries Snap Rally on Growth Outlook

South Korea’s government bonds fell after the Finance Ministry maintained its economic growth forecast and U.S. Treasuries ended a five-day rally.

The ministry stands by its December projection for 3.8 percent expansion in 2015, Vice Finance Minister Joo Hyung Hwan said in an interview published today. That contrasts with the central bank, which last week cut its estimate to 3.4 percent. Treasuries retreated Friday in New York on speculation the drop in yields to records was overdone as the U.S. outperforms other major economies.

The yield on sovereign notes due December 2017 rose four basis points, or 0.04 percentage point, to 2.04 percent at the close in Seoul, Korea Exchange prices show. It touched an unprecedented 1.97 percent last week. The five-year yield climbed four basis points to 2.14 percent, while that on 10-year notes advanced five basis points to 2.39 percent.

“The Finance Ministry’s growth forecast may include the impact of possible stimulus measures, while that of the Bank of Korea may not,” said Kong Dong Rak, a Seoul-based fixed-income analyst at Hanwha Investment & Securities Co. “Bond yields are also reflecting moves in U.S. Treasuries.”

The difference in the ministry and the Bank of Korea’s estimates partly reflects a divergence of opinion on the likely impact of government policies, Vice Finance Minister Joo said on Jan. 16, a day after the central bank cut its estimates for growth and inflation.

Treasuries fell Friday after a report showed U.S. consumer confidence rose to the highest in 11 years amid job gains and lower fuel costs. The benchmark 10-year yield rose 12 basis points to 1.84 percent, according to data compiled by Bloomberg.

The won fell 0.1 percent at 1,078.01 a dollar, prices compiled by Bloomberg show. It reached 1,072.15 last week, the highest since Nov. 3, and has strengthened 1.2 percent this month.

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