South Korean government bonds fell after central bank Governor Lee Ju Yeol said the decision to hold the benchmark interest rate was unanimous and refrained from signaling further easing to tackle a weakening yen.
The Bank of Korea left the seven-day repurchase rate at 2 percent today, as forecast by 19 of 20 economists surveyed by Bloomberg. That followed reductions in August and October as the government called for expansionary policies to support growth. Rate-cut bets increased after theBank of Japan unexpectedly boosted monetary stimulus last month, weakening the yen.
The yield on the 2.75 percent sovereign bonds due June 2017 rose two basis points, or 0.02 percentage point, to 2.22 percent at the close in Seoul, Korea Exchange prices show. The 10-year yield increased two basis points to 2.78 percent.
“For the past few months, rate cuts in South Korea were driven more by political considerations than economic fundamentals,” said Kim Chang Seob, head of the fixed-income team at Shin Young Asset Management Co. in Seoul. “It seems only a few economists forecast a rate cut this year now.”
South Korea’s bond yields fell to record lows last week as the won’s relative strength against the yen raised bets the central bank may signal further easing to maintain exporters’ competitiveness.
The central bank doesn’t set the benchmark rate just to target currency movements and the current 2 percent is “accommodative” to growth, BOK’s Lee said in a press briefing after the decision.
The won weakened 0.1 percent to 1,096.76 per dollar at the close, according to prices compiled by Bloomberg. It declined to 1,099.50 earlier, near the 14-month low of 1,102.65 reached yesterday. South Korea’s financial markets opened an hour late today to reduce traffic for the nationwide college entrance exams. The won strengthened 0.1 percent to 9.49 against the yen. It reached a six-year high of 9.39 on Nov. 3.
Nomura Holdings Inc. pushed back its forecasts for Bank of Korea rate cuts by a month each to January and April, Kwon Young Sun, a Hong Kong-based economist, wrote in a research note today after the decision.
original source: http://www.bloomberg.com/news/2014-11-13/south-korea-bonds-drop-after-unanimous-decision-to-hold-key-rate.html