South Korean government bond prices gave up their early gains to end lower on Monday as the central bank chief's remarks before a parliamentary committee lowered expectations of a cut in interest rates soon.
Bank of Korea Governor Lee Seong-tae said South Korea's economy would see annual growth slowing between the second half of 2006 and the first half of 2007, but would then enjoy a rebound late next year.
The yield on benchmark five-year treasury bonds rose three basis points to 4.65 percent, while the three-year treasury yield also ended three basis points higher at 4.60 percent.
"Investors started out with high expectations of getting some guidance on future interest rate policy from the central bank's governor during the parliamentary hearing, but left disappointed after hearing no comments about an interest rate cut," said a Hyundai Securities dealer.
Lee said on Monday that growth in South Korea's economy will probably slow in 2007 from the roughly 5 percent forecast for this year and tensions related to North Korea remain a key risk. Lee also added that the economy would grow at an annual rate of around 4 percent in the first half of 2007 before picking up in the second half.
In a week filled with economic indicators, investors are waiting on the Bank of Korea to release South Korea's gross domestic product growth figures on Wednesday and keeping an eye on the Federal Reserve's policy meeting on Tuesday. On the primary market, the finance ministry sold 970 billion won ($1.01 billion) worth of 10-year treasury bonds on Monday. The central bank said it would auction 2.5 trillion won worth of monetary stabilisation bonds in 182-, 91- and 63-day paper on Tuesday. The December treasury bond futures contract dropped 11 ticks to 109.33. The benchmark Korea Composite Stock Price Index rose 0.05 percent.