SEOUL, April 08 (AJP) - The relief over bombardment in the Gulf brought long-awaited relief to the South Korean won and bonds, and the truce amplified Seoul’s intervention campaign, according to traders.
The won closed at 1,470.6 per dollar, returning below the 1,500 level for the first time in 12 trading days. The 33.6 won gain marked the steepest daily move in about three months, since a 33.8 won jump on Dec. 24 last year amid heavy intervention.
The conditional ceasefire triggered a sell-off in the safe-haven dollar while boosting demand for the won and Korean equities. As of 4 p.m. Wednesday, the U.S. Dollar Index (DXY) fell nearly one point to 98.7, nearing its lowest level in 12 sessions.
Foreign investors abruptly reversed course after offloading 36 trillion won in KOSPI shares in March alone. They net bought 2.4 trillion won ($1.63 billion) worth of stocks on Wednesday, far surpassing the previous daily record of 800 billion won set on April 3.
The figure marks the second-largest daily net purchase of the year, following 2.9 trillion won on Feb. 12.
The bond market also staged a sharp rally. The yield on the benchmark three-year government bond fell 13.6 basis points to 3.315 percent, while the 10-year yield dropped 12.6 basis points to 3.628 percent.
Both yields fell below the 3.4 percent and 3.7 percent levels for the first time in a week, echoing the rally seen on April 1 when South Korea’s inclusion in the World Government Bond Index (WGBI) began in earnest.
Analysts say the “WGBI effect,” which had been diluted by the war, is now resurfacing.
“The inclusion in the WGBI is estimated to bring in about $60 billion, or up to 90 trillion won, in capital inflows,” said Yoon Yeo-sam, a researcher at Meritz Securities. “We are seeing increased international trading not only in three- and 10-year treasuries but also in long-term bonds with maturities of 20 years or more, as well as corporate bonds.”
Authorities are also maintaining efforts to curb volatility.
According to the Bank of Korea, the nation’s foreign exchange reserves fell by $4.4 billion from December to March as authorities deployed dollars to support the won. South Korea’s reserve ranking slipped from ninth to 12th in February and is expected to fall further in March.
The Ministry of Economy and Finance held talks with major global investment banks on Tuesday to assess the impact of the Hormuz blockade and pledged continued intervention if volatility persists.
Meanwhile, financial authorities are focused on maintaining confidence in the credit market.
At an emergency task force meeting Wednesday, officials said South Korea’s credit spreads remain stable.
The spread on AA- rated corporate bonds widened by just 6 basis points, from 59.6 at end-February to 65.6 as of April 7 — a limited increase compared with the 28 basis-point spike within a month during the 2022 “Legoland” municipal bond crisis.
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