South Korean treasury prices extended their bull run for a sixth straight session on Friday, with a firmer won and a government buyback plan driving the 20-year yield to an all-time low. South Korean exports and inflation raced past expectations in September, which may support the case for the central bank to raise interest rates again in coming months as it slowly brings policy settings back to normal.
But the data failed to reverse the market consensus that uncertainties from the global economy and the rising won would persuade the Bank of Korea to keep its policy rate on hold for a third straight month at its next rate-setting meeting on October 14.
The market found an initial boost from news the government would buy back 2-3 trillion won ($1.8 billion to $2.6 billion) worth of treasury bonds more than previously planned this year. The yield on the benchmark five-year government bonds tumbled 14 basis points to 3.57 percent, sticking to its six-year closing low and coming closer to its historic trough of 3.33 percent hit in 2004.
After shedding 73 basis points in the third quarter, the five-year yield's spread over one-year treasuries narrowed to the lowest since May 2009. The 20-year treasury bond yield plunged 17 basis points to 4.24 percent, its lowest level, while the won held at a 4-1/2-month trough against the dollar. A fund manager predicted the three-year yield to go down further to the 2 percent level, saying that plenty of liquidity at banks and other financial institutions would lead them to continue to pour money into fixed-income assets.