SEOUL, September 07 (AJP) - The South Korean won strengthened sharply Monday but gave back part of an early rally, while Korean government bond yields ended broadly steady despite higher global rate expectations.
The won strengthened 9.9 won from the previous session to close daytime trading at 1,340.5 per dollar, compared with Friday's 1,350.4.
The currency strengthened as far as 1,334.7 earlier in the session. It was its strongest level since Oct. 4, 2024, and the dollar-won rate later rebounded to around 1,346 following a report on National Pension Service (NPS) hedging.
Reuters reported, citing a market source, that the NPS had suspended foreign-exchange hedging operations as the won approached a two-year high.
NPS officials told AJP that, as a matter of policy, the fund does not disclose whether it executes foreign-exchange operations and therefore could not confirm the report.
The pension fund's strategic hedging effectively adds dollar supply to the domestic foreign-exchange market, meaning a suspension could remove one source of downward pressure on the dollar-won rate.
The won nevertheless held most of its advance through the close.
U.S. nonfarm payrolls increased by 162,000 in August, well above market expectations, while the unemployment rate held at 4.1 percent.
The data revived expectations for another Federal Reserve rate increase, with markets assigning about a 57 percent probability to a September hike in Asian trading Monday.
Korean government bond yields ended with limited moves after investors absorbed the U.S. jobs report and higher overseas yields.
The three-year Korean government bond yield rose 1.6 basis points to 3.900 percent, while the 10-year yield climbed 2.5 basis points to 4.385 percent, according to final quotations.
The 30-year yield moved in the opposite direction, edging down 0.5 basis point to 4.631 percent.
Friday's stronger-than-expected U.S. employment report had pushed Treasury yields higher and raised expectations for further Federal Reserve tightening.
U.S. financial markets were closed Monday for the Labor Day holiday, leaving the Seoul market to reflect Friday's repricing without fresh Treasury trading.
A 3.2 trillion won ($2.4 billion) auction of three-year Korean government bonds also provided a test of domestic demand at the start of the week.
Pressure from Japan remained in focus. The benchmark 10-year Japanese government bond yield reached 3 percent last week for the first time since 1996, with markets nearly fully pricing a 25-basis-point Bank of Japan rate increase at its Sept. 17-18 meeting.
Investors will next look to U.S. inflation data later this week for further clues on whether stronger employment and persistent price pressures will lead the Federal Reserve to raise rates this month.
AJP Takeaways
- The South Korean won strengthened 9.9 won to 1,340.5 per dollar after briefly reaching its strongest level in nearly two years.
- National Pension Service officials told AJP that the fund could not confirm a report that it had suspended foreign-exchange hedging operations.
- Korean government bond yields ended broadly steady, with three- and 10-year yields rising modestly while the 30-year yield edged lower.
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