S. Korean bonds gain on BoK’s rate cut expectation

The South Korean 10-year bond prices gained on Monday ahead of BoK’s monetary policy meeting on Tuesday, 19th April where the Reserve Bank of Korea is widely expected to cut its policy rate. The 10-year bonds yield, which is inversely propositional to bond price declined 1.23 pct to 1.76 pct and 3-year bonds yield dipped 0.41% to 1.44 pct.

The South Korean exports fell less than expected in March, down 8.2% y/y (consensus was for –10.9% y/y) after –12.2% y/y in February. Moreover, March CPI inflation moderated to 1.0% y/y, lower than the consensus of 1.3% y/y) from 1.3% y/y in February.

The Bank of Korea's monetary policy committee meets next week on April 19th 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 in April, after holding its benchmark at a record low 1.5 pct for 9-months. This is supported by the increasing speculation in the market that the BOK may cut borrowing costs that are already at a record low, pushing bonds prices further up.