Korea’s bond rallies ahead of Fri rate meeting after dovish Fed comment

2018.11.29 16:35:55 | 2018.11.29 16:36:14

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South Korea’s government debt prices jumped Thursday as the domestic market also interpreted the overnight comment from U.S. Federal Reserve chief as an indication of a moderation in rate increases that also could affect the Korean monetary policy - as early as Friday’s last rate decision for this year.

On Thursday, the three-year government bond yield finished 3.1 basis points lower at 1.889 percent, while the five-year bond yield ended 3.3 basis points down at 1.972 percent. The main Kospi closed 0.28 percent higher at 2114.10, and the Korean won rose 7.3 to 1119.2 against the U.S. dollar.

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The rally was sparked by surprisingly dovish comment from U.S. Federal Reserve Chairman Jerome Powell on Wednesday.

“Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy - that is, neither speeding up nor slowing down growth,” Powell said in a sharp reversal from his earlier comment in early October when he had said, “We may go past neutral, but we’re a long way from neutral at this point.”

“There is no preset policy,” he added, “We’ll be paying very close attention to what incoming economic and financial data are telling us.”

A fewer rate increases in the U.S. would pose as a relief to BOK which must keep policy accommodative of the Korean economy which is expected to worsen next year.

By Lee Yu-sup and Lee Ha-yeon

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