Government Bonds Swing Widely on News and Rumors

Government bond yields have been on a roller coaster in recent days, bringing smiles to some and worried frowns to others.

On Thursday, the yield on three-year government debts opened nearly unchanged from the previous day's close. It then jumped by 18 basis points to 5.9 percent as some foreign media reported that Jin Nyum, the finance and economy minister, said no further interest-rate cut is necessary.

But the bond yield ended down 6 basis points (0.06 percent) from Wednesday's close after the Ministry of Finance and Economy denied the report.

The government-bond futures index also fluctuated wildly throughout the day before closing at 106.29. Daily transactions hit a new high of 42,796 contracts.

The yield on government bonds also soared Wednesday on positive comments on Korea's economy by Chon Chol-hwan, head of the Bank of Korea, and the IMF's Seoul chief, David Coe.

"If the yield goes up by one percentage point, institutional investors, who purchased government bonds at lower yields, may suffer millions of dollars of losses," said Kim Byung-chul of Tong Yang Securities Co.

by Cheong Chul-gun