The South Korean treasury bond yield curve flattened on Wednesday, with investors favouring longer-end bonds in response to China's sudden reserve rate hike. The debt futures market initially tracked US Treasuries' rally on the view that China's move towards tightening might chill global economic recovery momentum.
The gains, however, tapered off as investors were divided over how China's action would affect the future course of the nation's monetary policy. A senior finance ministry official said on Wednesday that the government's stance on an exit strategy would remain intact, regardless of what happened in China.
The one-year treasury bond yield rose 1 basis point to 3.25 percent, rebounding from a five-week low seen on Tuesday, while the 10-year yield fell 1 basis point to 5.36 percent, narrowing the spread after hitting a near two-month high on Monday.
The one-year interest rate swap rate rebounded from steep declines seen since last week amid growing hopes for a delayed rate hike. The March treasury bond futures contract moved in and out of positive territory before closing 5 ticks lower at 109.45, receding from a near one-month high set on Tuesday.
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