South Korean government bonds slumped on Friday after a two-day rebound as investors feared Monday's major bond auction might reignite supply concerns. The government plans to auction up to 2.7 trillion won ($2.01 billion) in 3-year treasury bonds on Monday, larger than the 2.28 trillion won issuance in March, in order to finance its unprecedented extra budget.
"Many debt investors fear the sizable new 3-year treasuries may be undersold or issued at a yield of near or above 4 percent and this should remind them of the persistent supply burden," said Park Yu-na, a fixed-income analyst at Hyundai Securities.
The growing geopolitical tension with North Korea also added to the cautious mood, with the communist state expected to fire a long-range rocket as early as this weekend. Uncertainty over the central bank's upcoming rate decision also kept debt investors at bay.
Despite the European Central Bank's rate cut on Thursday and signal of more "non-standard" measures, the Bank of Korea was largely expected to stay pat again on April 9 after six successive cuts amid some signs of the economy nearing a bottom. The yield on 3-year treasury bonds rose 8 basis points to 3.95 percent while the yield on benchmark 5-year treasury bonds climbed 5 basis points to 4.62 percent. June treasury bond futures fell 15 ticks to end at 110.20.