South Korean bonds rise as slowing economy boosts rate-cut bets

[SEOUL] South Korea's government bonds rose on speculation the country's slowing economy will prompt the central bank to cut interest rates from a record low.

Gross domestic product probably increased 2.3 per cent in the first quarter from a year earlier, according to the median estimate of economists surveyed by Bloomberg before data due Thursday. That's less than the 2.7 per cent in the last three months of 2014 and would be the slowest pace in two years. The government will consider measures to support expansion if needed in the second half after monitoring economic trends, Finance Minister Choi Kyung Hwan said in Seoul on Tuesday.

The yield on the 2 per cent bonds due December 2017 dropped one basis point to 1.70 per cent as of 10:24 am in Seoul, Korea Exchange prices show. It has fallen 40 basis points, or 0.4 percentage point, this year. The 10-year yield was steady at 2.18 per cent.

"It'll be disappointing to confirm weak growth even as the consensus is already seeing sluggishness," said Kim Myoung Sil, a fixed-income analyst at KB Investment & Securities Co in Seoul. "The data will fuel expectations for another rate cut." The BOK reviews benchmark borrowing costs on May 15 after cutting to 1.75 per cent from 2 per cent in March. Some 13 of 28 analysts surveyed by Bloomberg forecast the policy rate will be lowered to 1.5 per cent before the end of the year.

Pressure is growing for the government to release a supplementary budget to help stimulate the economy, in addition to the record 375.4 trillion won (US$347 billion) of state spending for 2015 that's already been announced. Minister Choi said in parliament on Tuesday that it's too early to discuss an additional budget, and the government will try to minimise the tax revenue shortfall this year.

The won was little changed at 1,083.49 a dollar, data compiled by Bloomberg show. The currency has rallied 2.4 per cent so far this month in Asia's best performance.

BLOOMBERG