S. Korean bonds flat ahead of BoK’s policy decision

The South Korean bonds closed flat Thursday as investors await up-coming monetary policy decision due on Friday. The 10-year bonds yield, which is inversely propositional to bond price stood unchanged at 1.764 pct and 2-year bonds yield remained steady at 1.427 pct.

The Bank of Korea's monetary policy committee meets on May 13th to set the 7-day policy interest rate, which has been left unchanged at record-low 1.5 pct after seven rounds of reduction until June last year. We expect the BOK to cut this time, after holding its benchmark at a record low 1.5 pct for 9-months. This is supported by the recent reading of poor economic data- the April exports declined 11.2 pct y/y, against market expectation of 11 pct y/y fall, from down 8.1 pct in March. Similarly, the South Korea's industrial production tumbled 2.2 pct m/m in March, against expectation of 0.1 pct m/m rise, from up 3.2 pct in February. On annual basis, it declined 1.5 pct in March; investors were waiting for a rise of 0.8 pct, as compared to prior 2.2 pct. On the other hand, the South Korea's jobless rate fell to 3.7 pct in April from 3.8 pct in March, along with besting estimates for 3.8 pct.

In addition, the South Korea’s headline inflation for April stood at 1 pct y/y, in line with market expectation, as compared to 1 pct in March, mirroring the impacts of weak worldwide oil costs, and darkening the economy's progressing unassuming recuperation. Similarly, it rose 0.1 pct m/m, from a drop of 0.3 pct in March, which boosted investors sentiments for further BoK easing.

Meanwhile, The Korea Composite Stock Price Index (KOSPI) closed down 0.13 pct at 1,977.49 points.