Korea bond rally pushes yields to record low as exports falter

[SEOUL] South Korea's government bonds rose, pushing yields to record lows, as slumping exports and a weak yen spurred speculation the central bank will cut interest rates to support growth in Asia's fourth-largest economy.

Shipments fell for a 13th month in January, contracting the most since August 2009, official data showed Monday. The yen weakened after the Bank of Japan adopted negative interest rates on Friday, boosting the competitiveness of Japanese goods. The two nations compete globally to sell everything from cars to electronics.

Following the trade figures there's a "substantial risk" the Bank of Korea will cut its policy rate from a unprecedented 1.50 per cent before June, Nomura Holdings Inc said in a report.

The yield on notes maturing December 2018 dropped four basis points to close at 1.53 per cent in Seoul, Korea. Exchange prices show the lowest on record for a benchmark three-year security. The 10-year yield declined six basis points to a historic 1.92 per cent. Global funds bought a net US$335 million in local bonds in January.

"Sluggish exports data after Japan expanded its stimulus spurred the rally in bonds," said Hwangbo Youngok, a Seoul-based director at Korea Investment & Securities Co, one of the nation's 19 primary bond dealers.

"Expectations of another rate cut have heightened considerably," and the three-year yield could fall below the benchmark rate if any BOK board member calls for a reduction at the next meeting on Feb 16, he said.

The Finance Ministry will consider if it's necessary for its officials to attend the central bank's policy meeting and share views on the economic situation with BOK's board, Finance Minister Yoo Il Ho said in a meeting with reporters on Monday. The Kospi index of shares rose 0.7 per cent.

The won weakened 0.1 per cent to 1,200.41 a dollar, data compiled by Bloomberg show. The currency fell as much as 1 per cent, the most since Jan 11, and is Asia's worst performer this year with a 2.3 per cent loss. The won surged 2.7 per cent to 9.90 versus the yen on Friday, its biggest jump since April 2013, as the Japanese currency retreated 1.9 per cent against the greenback.

BLOOMBERG