Korean assets benefit from instability

The returns on Korea’s government bonds hit a record low and the local currency rose to a three-year high to the dollar last year as Korean assets were seen as being more attractive amid the global economic slowdown, data showed yesterday.

The yearly return on benchmark three-year Treasury bonds reached an average of 3.1 percent in 2012, the lowest level since 1995 when related data began to be compiled, according to the Korea Financial Investment Association.

The returns on longer-dated government bonds and uncollateralized corporate bonds rated AA- also hit record lows last year, data showed.

After hitting 13.1 percent in 1995, the yields on the three-year state bonds largely stayed above the 5 percent mark until 2008.

But aggressive rate cuts aimed at coping with the global financial crisis began to lead the bond yields to fall, and foreign investors have seen Korean assets as relatively sound ones as Asia’s fourth-largest economy quickly recovered from the turmoil, analysts say.

A spate of credit rating upgrades by all three global credit appraisers on Korea last year prompted foreign investors to ramp up their purchases of local bonds as the moves were viewed as votes of confidence for the nation amid the protracted euro zone debt crisis, experts added.

“Last year, investors’ appetite for risk aversion was strong and quantitative easing by advanced economies has made Korean assets attractive,” said Shin Dong-jun, a senior fixed-income analyst at Dongbu Securities.

The Korean currency rose 7.58 percent to the U.S. dollar last year, the strongest gain since 2009, when it appreciated 8.16 percent.

The won used to undergo sharp depreciation whenever a financial crisis cropped up. It tumbled 25.7 percent to the greenback in 2008, hit by the bitter impact of the global financial crisis.

But it has regained its value as the Korean economy recovered from the global financial meltdown quickly compared to other countries, analysts say.

The U.S., the euro zone and Japan announced massive bond-buying programs last year in a bid to bolster their fragile economies. Massive liquidity being unleashed by their accommodative monetary policies is flowing into emerging countries, raising risks of currency appreciation there.

Yonhap