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The South Korean bonds were trading mixed on Tuesday as Korean economy hindered pointedly in the Q1 of 2016, against last quarter in 2015 as sluggish exports kept on weighing economic growth, adding pressure on the central bank to make further move. On the other hand, firm equities and rallying crude oil prices drove-out investors from safe-haven assets. The 10-year bonds yield, which is inversely propositional to bond price rose 0.05 pct to 1.830 pct and 3-year bonds yield dipped 0.21 pct to 1.454 pct by 0555 GMT.
The South Korean economy expanded 1.5% q/q saar in the first quarter of 2016, according to the first quarter GDP estimate released today. This is the slowest pace in more than five quarters; however, it is consistent with consensus expectation, noted DBS Bank. In the first quarter, exports shrank 6.4%, while facilities and private consumption contracted 21.7% and 1.2% respectively.
As imports declined 13.4% in Q1, exports contributed positively to the economic growth. Meanwhile, government consumption and construction investment, which grew 5.2% and 25.8% respectively, also helped drive the economic growth. This indicates the growth in public spending.
“We keep the full-year GDP forecast at 2.6% after the 1Q16 data release. This assumes a nearly flat growth in 2Q16 (2.2%) and a modest rise in 3Q- 4Q15 (3% on average)”, said DBS Bank.
Moreover, the South Korean bonds have been closely following developments in oil markets because of their impact on inflation expectations and stocks prices. Today, crude oil prices rose by tracking weak greenback and stream on fresh liquidity into the market. Meanwhile, Crude oil prices continue to rover around 5-month high. The International benchmark Brent futures rose 0.18 pct to $44.41 and West Texas Intermediate (WTI) climbed 0.66 pct to $42.92 by 0555 GMT.
We expect the BOK to cut in May, after holding its benchmark at a record low 1.5 pct for 10-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.
Meanwhile, The Korea Composite Stock Price Index (KOSPI) rose 0.27 pct at 2,019.99 points by 0550 GMT.
