South Korean government bond prices jumped on Friday, wiping out Thursdays losses, as Europes rate cut reinforced hopes for a similar action by the Bank of Korea next week. The wons rebound also supported the debt market, with North Koreas threats against South Korean commercial airlines flying, near its territory largely ignored.
The yield on 5-year treasury bonds fell 10 basis points to 4.57 percent while March Treasury bond futures jumped 29 ticks to 111.89. "The rate cuts by the European Central Bank and the Bank of England prompted many investors to bet that the BOK would follow suit," said Lee Jung-bum, a fixed-income analyst at Shinyoung Securities. "I expect a 25-basis-point cut next week."
Economists are divided over the chances the BOK will cut rates further on Thursday, with the weak won likely to be the deciding factor, a Reuters poll showed. "Even if the central bank opts for a halt in its months long rate-cutting campaign, the authorities would come up with more drastic quantitative easing measures to protect the debt market," Lee said.
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