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South Korean treasury bonds jumped on Monday as foreign investors' net purchase of debt futures hit a 4-month high on growing hopes of a delay in rate hikes and a successful bond auction. The nation's vice finance minister on Monday stressed its vow to maintain expansionary macroeconomic policy for the time being while trying to curb inflation expectations and speculative investment in property.
The won's sharp gains against the dollar also bolstered the view that the government would press hard against an early rate hike. On the primary market, the finance ministry issued 3.1 trillion won ($2.77 billion) worth of 5-year notes, far more than planned, at an average yield of 4.85 percent, well below Friday's close.
The Bank of Korea (BoK) on Friday left the door open for a rate hike as early as February but intensifying political pressure from the growth-fixated government prompted investors to reduce the magnitude of rate hikes for this year or push back the start of tightening deeper into 2010.
The benchmark five-year treasury bond yield fell 5 basis points to 4.86 percent while the one-year note yield tumbled 12 basis points to a one-month low of 3.26 percent, producing steeper yield curve. The March treasury bond futures contract jumped to 3-week high as foreign investors racked up a net 1.43 trillion won worth of futures, their biggest daily purchase in four months.

Copyright Reuters, 2010

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