South Korea Bonds Advance for Third Week on Rate-Cut BetsMoonyoung Tae
South Korea’s government bonds completed a third weekly advance, pushing the three-year yield to a record low, amid speculation the central bank will ease monetary policy further to boost economic growth.
Finance Minister Choi Kyung Hwan said Wednesday concerns about deflation are growing, after official reports showed consumer prices rose at the slowest pace in 15 years in February and industrial output unexpectedly fell in January. The Bank of Korea has kept its key rate unchanged at 2 percent this year even as China lowered borrowing costs and the European Central Bank increased asset purchases. The BOK next meets March 12.
“The government’s renewed focus on deflation concerns may push BOK to lower its benchmark rate,” Lee Jae Seung, a Seoul-based fixed-income analyst at KB Investment & Securities Co., wrote in a report Friday. “The BOK will be under significant pressure after its counterparts in Europe and China eased policy to fight deflation.”
The yield on the 2 percent notes due December 2017 declined nine basis points, or 0.09 percentage point, this week to close at 1.94 percent in Seoul, matching a record low reached Feb. 3, Korea Exchange prices show. It fell four basis points Friday and remained below the benchmark rate for a fourth day. The 10-year yield fell three basis points from Feb. 27 to 2.32 percent.
The won fell 0.1 percent this week to 1,098.81 a dollar, data compiled by Bloomberg show. The currency rose 0.2 percent Friday and has weakened 0.7 percent this year.
The Bank of Korea has refrained from adding to rate cuts in August and October as policy makers expressed optimism for modest economic growth and inflation in 2015.
The People’s Bank of China lowered benchmark lending and deposit rates by a quarter percentage point Feb. 28, the second reduction in three months, and ECB President Mario Draghi unveiled details for the plan to purchase 1.1 trillion euro ($1.2 trillion) of debt after a policy meeting Thursday.