Questions on economy fuel gov’t bond advance

Korea’s government bonds advanced as demand for safer assets increased on concern that a recovery in Asia’s fourth-biggest economy is slowing.

Finance Minister Hyun Oh-seok last week urged consumers and businesses to resume normal activities to help avert an economic setback from a slump in consumer sentiment as the nation mourns the hundreds killed in the Sewol ferry tragedy last month. The central bank’s 4 percent growth target looks too optimistic, given signs of weakening demand and a strong won, HSBC Holdings strategists Andre de Silva and Dayeon Hong wrote Friday.

The yield on the 3.5 percent government notes due March 2024 fell one basis point to 3.38 percent at the close in Seoul, according to Korea Exchange prices. The yield on the 3.125 percent bonds maturing March 2019 fell a basis point to 3.07 percent. HSBC predicts 10-year yields will drop to 3.2 percent, without specifying a time frame.

“There are expectations that bond yields can fall lower as the economic recovery doesn’t look strong,” said Park Dongjin, a Seoul-based fixed-income analyst at Samsung Futures. “Foreigners’ net purchases of bond futures today are supporting this bet.”

Overseas investors bought more 10-year bond futures than they sold yesterday, while the finance ministry auctioned 2.13 trillion won ($2.1 billion) of 10-year bonds at 3.38 percent.

The nation’s exports increased 9 percent in April from a year earlier, more than the 5.5 percent gain expected.

Korea must consider various steps to ease foreign exchange volatility as fluctuations may affect the real economy, Hyun Oh-seok said at a National Assembly session yesterday. Bank of America Merrill Lynch estimated Korea authorities purchased $3.5 billion in March and April as the won appreciated, according to a note yesterday by Hong Kong-based strategist Albert Leung.

The won appreciated 0.2 percent to 1,022.06 per dollar, according to data. It has rallied 4.2 percent this quarter, the strongest performance of 31 major currencies.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose six basis points to 5.97 percent

Bloomberg