South Korean government bonds rallied on Wednesday, with some yields falling below the 7-day policy rate, as traders bet on a surprise interest rate cut by the central bank at a policy review on Thursday.
The 1-year Treasury bond yield ended the session at 1.956 per cent and the 3-year yield at 1.974 per cent, both at record lows and below the central bank’s 7-day policy rate of 2.0 per cent.
This week’s bond rally was sparked by President Park Geun-hye’s comment on Monday that authorities will deal with “the issue of an interest rate cut’’ through cooperation, although one of her aides subsequently clarified that the comment was not meant to suggest an imminent rate reduction.
As speculation continued that Park’s comment reflected government pressure on the central bank to lower the interest rates on Thursday, another senior government official reaffirmed late on Wednesday that the president’s comment had not implied any guidance over the next move in rates.
“Monetary policy is an issue on which the Bank of Korea’s monetary policy committee makes its decision based on its assessment of economic conditions,’’ Vice Finance Minister Joo Hyung-hwan told reporters after the trading ended on Wednesday.
In a Reuters’ survey of 34 analysts conducted between late last week and early this week, only seven predicted a rate cut at Thursday’s meeting, although 16 others still expected a reduction over the next five months.
The Bank of Korea’s seven-member monetary policy board has the sole authority to set interest rates, but some of its past decisions, which wrong-footed the market, raised speculation over possible government pressure.