South Korean bond prices fell across the board on Friday as the US central bank's emergency lending rate increase prompted traders, already cautious after the market's sharp rally, to unload holdings. The front-end contract on 3-year treasury bonds fell the most in two months while the 1-year interest rate swap rate gained the most in the same period, as the Federal Reserve's move came amid existing perceptions the market may have been overbought.
Analysts said the move was largely anticipated but caused a heavy sell-off as it was announced earlier than expected and between regular meetings. But they said any further impact on the local market would be limited. "I don't think the Fed's move has greatly changed the market's view on the US interest rate policy, but the news came at a tricky moment and in an unusual manner," said Shin Dong-su, a fixed-income analyst at NH Investment & Securities.
March treasury futures dipped 29 ticks to end at 110.16, the biggest daily loss since late December and coming off an over 2-month high set on Thursday. The 1-year interest rate swap rose 11 basis points to 3.34, the sharpest daily gain since mid-December after a sharp decline to an 8-month low by Thursday.
Foreign sales in treasury bond futures were modest at a net 233 contracts, compared with net purchases of 309 contracts on Thursday, data from the exchange showed. The benchmark 5-year treasury bond yield rose 5 basis points to 4.77 percent while the liquid 3-year treasury bond yield gained 8 basis points to 4.18 percent.
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