SEOUL, August 05 (AJP) - South Korea’s won and government bonds rallied on Wednesday as optimism over a potential U.S.-Iran agreement pushed oil prices lower, easing inflation concerns and drawing investors back into local assets.
The won closed the daytime session at 1,424.5 won to the dollar, strengthening by 8.0 won, or 0.56 percent, from Tuesday’s close of 1,432.5.
The three-year Korean government bond yield fell 7.1 basis points to 3.669 percent, while the 10-year yield dropped 11.0 basis points to 4.150 percent.
Bond prices move inversely to yields.
Oil prices declined on signs that Washington and Tehran were moving closer to an agreement that could include reopening the Strait of Hormuz, reducing concerns over energy-driven inflation in oil-dependent South Korea.
The retreat in U.S. Treasury yields reinforced the rally in longer-dated Korean debt as traders trimmed expectations for near-term monetary tightening by the Federal Reserve.
The gap between the 10- and three-year Korean government bond yields narrowed by 3.9 basis points to 48.1 basis points, producing a bull-flattening move as longer maturities outperformed.
The move suggested that expectations of further tightening by the Bank of Korea continued to limit gains at the short end, while longer-dated bonds responded more strongly to falling oil prices and lower global yields.
The won also drew support from renewed foreign demand for Korean equities.
Offshore investors bought a net 1.45 trillion won ($1.02 billion) of shares on the main KOSPI market, helping the benchmark index close 3.76 percent higher at 6,598.26.
Comments from U.S. Treasury Secretary Scott Bessent that the won had displayed excessive volatility also left traders cautious about betting against Asian currencies following an unusual U.S.-Japan intervention to support the yen.
The won’s advance was capped by dollar demand from importers and Korean retail investors purchasing overseas equities, preventing the currency from holding gains reached near the low-1,420 range earlier in the session.
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