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(LEAD) Demand for safer debt still high on hope for further rate cut

All News 16:31 December 19, 2019

(ATTN: ADDS BOK data in paras 7-8)

SEOUL, Dec. 19 (Yonhap) -- Bond prices in South Korea remain relatively strong on expectations that the country's central bank may further cut its policy rate early next year, data showed on Thursday.

From Friday through Wednesday, bond yields, which move inversely to prices, fell despite Washington's Friday announcement of the phase-one trade deal with China, which cleared one of the major drags on the global economy as well as the world's financial markets.

Over the four trading sessions, the benchmark three-year Treasurys fell 2.5 basis points to close at 1.357 percent on Wednesday, according to the Korea Financial Investment Association (KOFIA). The yield on 10-year Treasurys also fell 1.3 basis points over the cited period to end at 1.606 percent.

Experts say that expectations of a further rate cut by the Bank of Korea are stoking demand for debt, while the much-awaited Sino-American trade deal has been priced in.

(LEAD) Demand for safer debt still high on hope for further rate cut - 1

"There have been increasing expectations that the central bank's monetary easing policy will continue into the first half of next year," Yoon Yeo-sam, an analyst at Meritz Securities, said. "This led to the stronger-than-expected demand for bonds," he added.

Earlier this week, the BOK minutes hinted at a possible policy rate reduction next year, with at least three members of the bank's seven-member board expressing concerns over the country's slowing growth and low consumer price growth.

In efforts to bolster the slow economy, the BOK slashed its policy rate this year to 1.50 percent in July and 1.25 percent in October, matching the all-time low that was seen once in 2016.

The BOK also again trimmed South Korea's growth outlook for 2020 to 2.3 percent on Nov. 29, marking a reduction from the 2.5-percent forecast in July.

Stronger-than-expected demand for bonds also came amid market disappointment over a "smaller-than-expected" tariff rollback, analysts said.

"The U.S.-China interim deal did not go as far as lifting the existing tariffs, and therefore had limited impact," Hana Financial researcher Lee Mi-seon said.

Meanwhile, some analysts warned that the bond demands may subside down the road.

"The hopes for BOK's rate cut have weakened, largely on the improved economic indices and signs of recovering fundamentals," Shin Dong-soo, an analyst at Eugene Investment & Securities, said.


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