Korean Bond Yields Climb From Near Record Lows as Stocks Rally

  • Upper limit for 10-year yields at 1.47%, NH Investment says
  • ING raises won forecast, citing improving global sentiment

South Korean bonds fell, pushing yields up from near a record low, as a rally in equities around the world damped demand for haven assets.

Longer-maturity debt led declines after better-than-expected U.S. corporate earnings drove stocks in the world’s biggest economy to an all-time high. Japanese shares rose after Kyodo News reported the government is considering a 20 trillion yen ($187 billion) stimulus package. Korea’s won gained as overseas funds bought into both bonds and equities.

Risk-on sentiment that has pressured bonds globally is being reflected in South Korea this week, said Kang Seung Won, an analyst at NH Investment & Securities Co. in Seoul. “The market is also reacting to last week’s Bank of Korea decision to keep interest rates on hold," he said.

The benchmark 10-year yield climbed two basis points to 1.44 percent as of the 3 p.m. market close in Seoul after dropping to a record 1.35 percent on July 14, Korea Exchange prices show. The three-year yield was little changed at 1.24 percent.

Ten-year yields are unlikely to rise above 1.47 percent as "long-term investors keep buying bonds whenever yields go up," Kang said.

Central bank Governor Lee Ju Yeol kept interest rates at a record low on July 14 and said the government’s stimulus will boost growth by about 0.2 percentage point.

Won Gains

The won reversed earlier decline of as much as 0.3 percent and closed 0.4 percent stronger at 1,136.13 per dollar, after dropping 0.4 percent on Wednesday, as foreign investors purchased local stocks for a ninth day, the longest buying streak since 11 days in April. A gauge of the dollar was little changed after four straight days of gains amid rising bets that the Federal Reserve will raise interest rates this year.

ING Groep NV raised its year-end forecast for the won, saying the currency will appreciate to 1,080 per dollar, from its previous prediction of 1,130. “The Korean won is our top pick to perform in risk-on," Tim Condon, head of Asia research in Singapore, wrote in a note dated July 20.

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