South Korean government bond prices extended losses on Monday, still weighed down by last week's concerns about a potential tightening in Bank of Korea monetary policy, dealers said. Tuesday's looming 3.5 trillion won monetary stabilisation bond auctions were also keeping investors out of the market at the start of a week which is relatively light on economic data.
Friday's confident portrayal of the domestic economy by the central bank and its comments after its monthly interest rate review on Friday has led economists to change their views on the domestic economy and the interest rate outlook, in turn increasing negative sentiment in the local treasuries market.
BOK governor Lee Seong-tae's comments on money supply and inflation have caused some economists to believe the bank will hike rates sooner than they had previously anticipated.
The yield on the five-year treasury bond rose three basis points to 5.37 percent, its highest since 5.37 percent on January 11. Three-year treasury bond yields under the code edged up two basis points to 5.30 percent, while the less circulated three-year treasury bond issued earlier this month at the code rose three basis points to 5.26 percent.
"The market could have seen a rebound during the session, but lingering negative sentiment overrode the rebound attempts," said a dealer at Woori Investment and Securities. With just May export and import prices and May unemployment data due on Wednesday - none of which data is expected to have a large effect on the market - analysts expect the market to remain bearish during the week.
"The near-term outlook for MSBs and KTBs is clearly bearish. The selling momentum is likely to continue, overwhelming buyers at this juncture with limited factors supporting the bulls," analysts at Standard Chartered said in a daily report. On the supply front, the finance ministry sold 1.358 trillion won ($1.46 billion) worth of five-year treasury bonds at a yield of 5.35 percent, matching the quoted level.