South Korean government bonds soared on Tuesday as Australia's wider-than-expected rate cut fanned hopes for similar action at the Bank of Korea. But the money market rates suffered further stress, with the yield on the three-month certificates of deposit (CDs) hitting a near 8-year high, as a dollar-shortage problem spread to affect local currency liquidity.
"What we're seeing is a divergence on growing risk aversion," said Yang Jin-Mo, a fixed-income analyst at SK Securities. "The government bonds, a relatively safe asset, soared on rate cut hopes, but bank debts were shunned amid tightening credit in the money markets," Yang said.
The CD rate, which South Korean banks sell to raise short-term cash domestically, ended up 4 basis points at 5.95 percent, the highest since January 30, 2001. The yield jumped 16 basis points in just two weeks after staying at 5.79 percent for more than a month.
The yield on benchmark 5-year treasury bonds skidded 17 basis points to 5.62 percent while December treasury bond futures closed up 55 ticks at 106.37, after an earlier gain of up to 62 ticks.
Although the won tumbled again, bond investors were encouraged by Australia's surprise 100-basis-point rate cut, betting that other central banks, including the Bank of Korea, may follow suit to help contain the credit crisis. All of the 15 analysts polled by Reuters predicted no rate change at the central bank's Thursday policy meeting but most expected one or more rate cuts over the next six months.
Comments
Comments are closed.