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The South Korean government bonds plunged Wednesday after recent data showed that the country’s consumer inflation hit seven months high in September. Also, rally in crude oil prices dorve investors from safe-haven buying.
The 10-year bonds yield, which moves inversely to its price, rose 5 basis points to 1.506 percent and short-term 3-year bonds yield jumped nearly 4 basis points to 1.314 percent.
South Korea consumer prices rose by 1.2 percent y/y in September, market expectation was for 0.7 percent y/y, after registering 0.4 percent y/y growth in August. It is worth remembering that the inflation figure had stayed below the 1 percent level for four straight months since May. From a month earlier, the index edged down 0.6 percent in September.
Moreover, the S. Korean bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Korea's target. Crude oil prices bounced above $50 a barrel after a report that U.S. fuel inventories may have fallen for a fifth straight week. The International benchmark Brent futures rose 0.86 percent to $51.31 and West Texas Intermediate (WTI) also jumped 0.99 percent to $49.17 at 06:00 GMT.
The Bank of Korea Governor Lee Ju Yeol remianed optimistic on inflation and economic growth during its latest speech. Lee said that does not need to raise interest rate immediately after the Fed hikes interest rate; the Fed is seen raising interest rate once in 2016; the CPI is projected to rise by 1.0 percent y/y in 2016; the BoK can ease monetary policy more if needed; the central bank has space to cut and raise interest rates.
He added that South Korea’s past rate cuts of 25 basis points supported GDP growth by 0.05 percentage points in the year the reduction was made, and by 0.02 percentage points in the following year; 25 basis points rate cut also supported CPI growth by 0.03 percentage points in the year the reduction was made and by 0.05 percentage points in the following year.
Meanwhile, The Korea Composite Stock Price Index (KOSPI) closed 0.13 percent lower at 2,053.37 points.
