South Korean Bonds Lure Overseas Investors After Brexit Vote

Updated on
  • Foreign funds boosted holdings by $43 million on Monday
  • Concern of capital defection overblown, NH Investment says

Overseas investors boosted holdings of South Korean bonds for a second day as the U.K.’s decision to exit the European Union boosted demand for fixed-income assets.

Foreign funds bought $43 million on the securities on Monday, increasing total purchases to $85 million since the June 23 Brexit referendum, according to data from the Financial Supervisory Service. They sold local shares for a third day, having now offloaded a combined $450 million. Korea’s 10-year bond yields are back above that of U.S. Treasuries after being below them last week.

“The Korean bond market is seen as safe haven, unlike the stock market,” said Seungwon Kang, an analyst at NH Investment & Securities in Seoul. “At the moment, concerns of foreign capital defection due to Korean yields falling below U.S. yields look overblown.”

The nation’s 10-year yield was little changed at 1.49 percent as of the 3 p.m. close of trading in Seoul, Korea Exchange prices show. They offer a premium of four basis points over similar-maturity Treasuries, compared with a discount of 11 basis points on June 23.

‘Truly Attractive’

South Korea’s three-year yield climbed two basis points to 1.25 percent, 53 basis points above that of similar-maturity U.S. securities.

“That would be truly attractive for a foreign bond trader,” NH Investment’s Kang said.

The won rose for the first time in three days, gaining 0.9 percent to 1,171.25 per dollar, according to prices from local banks compiled by Bloomberg. The currency dropped to 1,188.50 on Monday, the weakest since June 3.

The government said Tuesday it’s planning to spend more than 20 trillion won ($17 billion) on a stimulus package to support jobs and growth to cushion the impact of Brexit and corporate restructuring in the local economy.

— With assistance by Jung Park

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