South Korean short-end government bond prices fell again on Friday, with the 3-year yield jumping to a fresh yearly high, after the central bank repeated its warnings against inflation and liquidity. The Bank of Korea governor again called for caution over inflation and asset price bubbles on Friday, a day after the central bank kept the rate steady for a fourth month, raising fears of an early rate hike.
"With the BOK confirming that the economy has turned a corner, a tightening appears to be a matter of time," said Yoon Yeo-sam, a fixed-income analyst at Daewoo Securities. "The talk of a possible rate hike has emerged so early, putting heavy upward pressure on the yields," he said.
The yield on three-year government bonds soared 8 basis points to 4.30 percent, the highest level so far this year, but the yield on five-year government bonds retreated 7 basis points to 4.90 percent, showing a steep flattening. The June treasury futures contract fell for a fifth day, losing a total of 181 ticks since Monday, with foreign investors dumping a net 5 trillion won worth of contracts.
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