Korea's 10-Year Bonds Rise as Investors Return on Rate-Cut Bets

  • Net debt inflows this week trim February outflow to $944 mln
  • Further losses forecast for Asia's worst-performing currency

South Korea’s 10-year bonds rose this week as overseas investors returned to the nation’s debt market amid mounting speculation the central bank will cut interest rates.

The notes climbed for a fifth week, a rally that pushed the yield to a record low earlier this month. One of seven of the Bank of Korea’s policy board members called for a reduction in borrowing costs at the February meeting from an unprecedented 1.5 percent. While the won halted a two-day decline, it was still down for the week, and analysts are predicting further losses before year-end for Asia’s worst-performing currency in 2016.

The yield on the government notes due 2025 fell three basis points on Friday and for the week to 1.78 percent in Seoul, Korea exchange prices show. It dropped to a record 1.77 percent on Feb. 11 and the nation’s local-currency debt has returned 1.7 percent in the past month, according to a Bloomberg index.

“The current buying by foreigners of Korean treasury bonds reflects their expectations for BOK easing," said Frances Cheung, the Hong Kong-based head of interest-rate strategy for Asia ex-Japan at Societe Generale SA.

Global funds bought a net $916 million of South Korean bonds this week through Thursday, paring the month’s outflows to $944 million, data compiled by Bloomberg show. South Korea will closely monitor financial markets and take preemptive steps immediately if abnormalities are seen, Finance Minister Yoo Il Ho said on Thursday.

The won appreciated 0.1 percent on Friday to 1,238.05 a dollar, trimming the week’s loss to 0.3 percent. It has depreciated 5.3 percent this year, compared with a decline of 3.8 percent in India’s rupee, Asia’s second-worst performer. The currency will weaken to 1,240 by the end of December, according to the median estimate in a Bloomberg survey.

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