South Korea’s government bonds advanced as investors bet the country’s incoming finance minister will push policies to boost economic expansion.
Choi Kyung Hwan, who is set to appear before a parliamentary vetting panel on July 8, last month described South Korea’s economic recovery as “slow” while Nomura Holdings Inc. said in a note yesterday that there is a “non-negligible” risk of a rate cut in the third quarter due to his pro-growth outlook. The won rose to a six-year high as overseas funds bought more local equities than they sold for the sixth day, exchange data show.
The yield on the 3.125 percent sovereign bonds due March 2019 fell one basis point, or 0.01 percentage point, to 2.80 percent at the close in Seoul, Korea Exchange prices show. The 10-year yield declined one basis point to 3.10 percent, while the three-year rate was little changed at 2.59 percent.
“No one is brave enough to take short positions on South Korean bonds at the moment,” said Yoo Hyun Chul, a Seoul-based fixed-income trader at Shinhan Investment Corp. The market expects Choi to make dovish comments, while some central bank board members may voice the need for a rate cut at the next monetary policy meeting on July 10, added Yoo. A short position is a bet an asset will decline in value.
South Korea’s foreign-exchange reserves rose to a record $366.55 billion as of the end of June as the government issued overseas debt, the central bank reported today. The authorities are concerned about herd behavior in the currency market and are monitoring transactions by companies and offshore investors, the Finance Ministry and Bank of Korea said in a joint text message yesterday.
The won rose 0.1 percent to 1,008.55 per dollar in Seoul, the strongest level since July 2008. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, advanced nine basis points to 4.86 percent.
“The next sentimental resistance level for the dollar-won exchange rate looks like 1,005,” said Kim Dong Wook, a Seoul-based currency trader for Kookmin Bank. Caution against action by the authorities may limit investors from taking aggressive short dollar positions, he added. “But companies still seem to be thinking it’s a chance to sell dollars whenever the won weakens.”