SEOUL: South Korean bonds rallied across the board on Wednesday, with yields on all major government treasury bonds ending below the Bank of Korea's base rate on expecations that the central bank will ease policy at its rate meeting on Thursday.
Yields on the benchmark five-year treasury bonds and three-year treasury bonds fell five basis points each to end at record lows.
Yields on 10-year, 20-year and 30-year debt also fell to record lows and below the central bank's benchmark seven-day repurchase agreement rate of 3.00 percent.
"The market's expecting additional easing even after a rate cut tomorrow," a local trader said. "Bank of Korea governor's comments about rate differentials between South Korea and other countries have stoked these expectations."
December futures on three-year treasury bonds also rose 0.19 points to 106.53.
Twenty-two out of 24 analysts in a Reuters survey expects the Bank of Korea to lower the base rate by 25 basis points to 2.75 percent on Thursday, compelled to act as downside pressure mounts against Asia's fourth-largest economy.
The central bank delivered a surprise 25-basis-point rate cut in July, the first easing in more than three years, but kept the rate on hold in August and September to assess the effects of the latest global round of policy easing.
"Yields are low already but we could see additional short-covering if the central bank lowers the policy rate," a local dealer said.
The South Korean won slipped to a near two-week low against the dollar on Wednesday as the greenback firmed on worries that corporate results will unveil lagging earnings from sustained sluggish growth around the world.
The local currency was quoted at 1,114.6 at the end of onshore close on Thursday, compared to Wednesday's domestic close at 1,110.7. Its intraday low of 1,115.5 was the lowest since Sept. 28.
Renewed fears about the euro zone fiscal crisis and pessimism about third-quarter corporate earnings undercut appetite for riskier assets. But dealers said the won's movements remained limited in the absence of groundbreaking news.
"Dollar demand from oil refiners and won demand from heavy industry firms appeared to stand off; there was some positioning to prepare for a central bank rate cut, as well," a foreign bank dealer said.
The benchmark Korea Composite Stock Price Index ended down 1.6 percent at 1,948.22. Foreigners were net sellers of 104.8 billion Korean won ($94.34 million)worth of local shares on Wednesday.
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