South Korean government bonds reversed earlier losses on Friday, underpinned by the government's plan to promote short-selling which could trigger more foreign buying of local debt. A top financial regulator said on Friday that the authorities would take steps to encourage local and foreign banks to use naked short-selling of bonds.
"The short-selling is positive for the debt market as it could invite foreign investors in but it can increase volatility, a development that the market doesn't like," said Kong Dong-rak, a fixed-income analyst at Taurus Investment & Securities. A central bank statement released after the governor's meeting with heads of local banks gave further support as the participants agreed on the need to closely monitor mortgage lending and housing prices despite recent signs of moderation.
Fresh evidence of housing prices flattening out emerged on Friday. A private lender said that the nation's apartment prices stayed steady this week, ending their 23-week rising streak, while prices in the capital area fell for the first time in eight months. The benchmark five-year government bond yield fell 2 basis points to 4.76 percent while the three-year yield rose 2 basis points to 4.26 percent. Front-end treasury bond futures rose as much as 10 ticks before ending 1 tick higher at 109.76, wiping out earlier 17-tick losses.
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