Seoul: Stocks, won, T-bonds tumble on faster tightening fears

SOUTH Korean shares, currency and treasury bonds tumbled on Wednesday (Jun 15), as worries deepened over an increasing possibility of much more aggressive monetary tightening at home and abroad.

South Korea’s benchmark 10-year treasury bond yield rose as much as 11.5 basis points to 3.812 per cent, hitting its highest level since May 2, 2012, while the most liquid 3-year treasury bond yield also jumped as much as 13.5 basis points to 3.68 per cent.

A majority of the Bank of Korea’s (BOK) board members thought the priority should be quelling inflation when they raised interest rates by 25 basis points to 1.75 per cent last month, minutes of its recent meeting showed on Tuesday.

Following the minutes, JPMorgan pencilled in additional 50 basis point rate hike to its BOK base rate forecast and expected the rate to reach 3 per cent by the end of this year. Citi added 25 basis points more to 2.75 per cent, while ING also projected the base rate to reach 2.75 per cent by the year-end.

“Now, with the US Federal Reserve expected of a ‘giant step’ rate increase, the minutes of the Bank of Korea’s meeting last month also read much differently in a way that suggests a bigger room for its own ‘big step’ hike,” said Daishin Securities’ fixed-income analyst Kong Dong-rak.

Investors have drastically shifted in recent days their expectations about the Fed’s Wednesday decision to a rate hike of 75 basis points — not the 50 basis points the market was expecting last week. The meeting’s outcome is due 6 pm GMT.

June futures on 3-year treasury bonds dropped 0.3 point to 103.75.

Meanwhile, the equity benchmark Kospi ended down 45.59 points or 1.83 per cent at 2,447.38, extending its losing streak to a seventh session in a row and marking the lowest close since Nov 9, 2020.

Shares of companies hit by a truckers strike jumped as the union reached an agreement with the government and ended the strike. Automakers Hyundai Motor and Kia rose 1.46 per cent and 0.13 per cent each. Hybe plunged 24.87 per cent after its band BTS announced a temporary halt in working as a group.

SEE ALSO

Seoul: Shares hit 19-month low on faster Fed rate-hike worries

Adding pressure on the stock market was forced selling of retail investors’ leveraged holdings due to recent sharp losses, said Eugene Investment and Securities’ analyst Huh Jae-hwan.

In the currency market, won closed trading 0.32 per cent lower at 1,290.5 per dollar on the onshore settlement platform , after hitting the lowest since Mar 19, 2020 at 1293.2. REUTERS