SEOUL, August 27 (AJP) - South Korean government bonds staged a sharp reversal Thursday after the Bank of Korea's second straight rate hike, while the won strengthened only modestly despite closing at an 11-month high.
The dollar-won rate fell 3.9 to close daytime trading at 1,380.9, its lowest level since September last year.
The rate dropped as low as 1,377.3 shortly after the decision before recovering much of the decline later in the session.
The BOK raised its base rate by 25 basis points to 3.00 percent, following an identical increase in July.
Government bonds initially sold off sharply as investors reacted to the consecutive hike and the central bank's large upward revision to its growth outlook.
The three-year Korean government bond yield climbed as much as 6.9 basis points to 3.886 percent. The 10-year yield rose 3.9 basis points to 4.321 percent.
The moves reversed after investors digested the BOK's six-month rate projections and Gov. Shin Hyun-song's press conference.
The three-year yield ended 6.1 basis points lower at 3.755 percent, according to final quotations from the Korea Financial Investment Association.
That represented a 13.1-basis-point reversal from its intraday high.
The 10-year yield closed 5.0 basis points lower at 4.238 percent, an 8.3-basis-point reversal from its earlier high.
The BOK's six-month conditional rate outlook showed a median of 3.25 percent, suggesting one additional quarter-point increase from the current level. Five of the 21 probability-weighted projections remained at 3.00 percent.
Board member Hwang Kun-il also dissented in favor of keeping the rate at 2.75 percent.
Shin said policymakers would assess the effects of the two consecutive increases and stopped short of committing to another immediate move.
Investors took the guidance as reducing the risk of another rapid succession of hikes, helping bonds recover from their initial losses.
The won's reaction was more subdued.
The currency strengthened after the decision but gave back much of its intraday gain as expectations for another immediate increase eased.
Month-end dollar selling by exporters also supported the won, while dollar-buying demand emerged below 1,380.
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