Korean Treasury yields forecast to hit record lows next year

South Korean Treasury yields are likely to continue to fall and hit rock-bottom levels during the second quarter of next year on expectations of additional rate cuts by the country's central bank, a report said on Thursday.

The Bank of Korea (BOK) will cut its base rate to a fresh record low of 1.75 percent in the April-June period of 2015, as China is likely to trim reserve-ratio requirements during the first quarter of next year, according to the report by Hana Daetoo Securities Co., one of leading local brokerage houses. 

Citing the South Korean economy has moved in line with the Chinese economy, its largest export destination, for the past few years, the report said "The two countries would cut their interest rates either in April and May." 

The BOK's additional rate reduction would push Treasurys yields here to all-time low levels during the second quarter, it said.

South Korean government bonds have been rallying, with their yields hovering around record-low levels amid low interest rates.

The BOK cut its base rate by a quarter percentage point to a record low of 2 percent in October following the rate cut of the same margin in August, in order to help boost domestic demand, which has been lackluster following a deadly ferry disaster in April.

The report forecast yield on benchmark three-year Treasurys fell to 2.05 percent during the second quarter, with that on 10-year Treasurys dipping to 2.55 percent.

Three-year Treasury yield, which inversely moves to prices, stood at 2.08 percent on Nov. 4, the lowest level on record, and the comparable figure for 10-year Treasurys was 2.63 percent on the same day, also the record low.

The report also said the expected rate cut by the central bank would support local exporters facing the risk of losing competitiveness in overseas markets largely due to weaker Japanese yen. 

The brokerage house forecast the won-yen rate would fall to 920 won level during the second quarter. The won-yen rate hovers around 950 won level, a near six-year low. (Yonhap)