South Korea's government bond prices dipped on Monday, snapping three sessions of gains after June industrial output rose more than expected. The benchmark five-year Treasury bond yield rebounded from a near-two-month low on Friday, rising two basis points to 5.32 percent, while the three-year yield also edged up two basis points to 5.27 percent.
"The index shows the domestic economy is accelerating, which will continue to have upward pressure on Treasury bond yields in the short as well as long term," said a fixed-income analyst at Woori Investment and Securities.
"However, investors have now passed the stage when bond prices change only on strong economic indicators. They are now checking on how those indicators will influence consumer inflation in the future."
The country's industrial output rose a seasonally adjusted 1.9 percent in June, compared with a median forecast in a Reuters poll for a 1.2 percent rise and a revised 1.0 percent rise in May. The strong output growth lent further support to expectations of another interest rate rise this year, but economists are still sceptical that it will happen sooner rather than later.
"Exports will continue to support factory output in coming months. However, favourable output figures in June don't change our forecast that the central bank will wait until the fourth quarter to have an additional interest rate hike," said Goh You-sun, economist at Daewoo Securities.
On the supply front, the Bank of Korea said after the market close that it will sell 2.0 trillion won ($2.17 billion) worth of monetary stabilisation bonds on Tuesday in 364-, 91-, 63- and 28-day paper. The September treasury bond futures fell 10 ticks to 107.26, while the benchmark stock index rose 1.25 percent.