Korean bond yields dip to yearly lows on rate cut

South Korea's government bonds advanced Wednesday, pushing the yield of three-year Treasury bonds near a yearly low as the Bank of Korea (BOK) cut its base rate twice in three months to support growth in Asia's fourth-largest economy.
   
The yield on the benchmark three-year Treasurys stood at 2.236 percent in the morning session, down 4.2 basis points from the previous session's close. The yield on five-year Treasurys also fell 4.5 basis points to 2.451 percent.
  
The comparable figure for 10-year Treasurys was 2.773 percent, down 6.2 basis points.
  
Earlier in the day, the central bank trimmed its policy rate by a quarter percentage point to match a record low of 2 percent, following a 0.25 percentage point reduction in August. 
   
"Government bond yields have already priced in the BOK's rate cut ... but may fall further on hopes for another rate cut," said
Kim Dae-hyung, an analyst at Eugine Futures Co.   
   
The bank downgraded its growth forecast for Asia's fourth-largest economy to 3.5 percent for the year from the previous 3.8 percent.
   
In July, the BOK also revised down its growth outlook by 0.2 percentage point, factoring in the impact of April's deadly ferry sinking that pummeled consumer and business sentiment in South Korea.
   
The April 16 ferry accident, which left more than 300 people dead or missing, took a toll on the country, which is suffering from lackluster consumption and investment despite solid exports.
   
BOK Governor Lee Ju-yeol cited slowing growth, weaker-than-expected inflationary pressure and downside growth risks such as feeble sentiment of economic agents as factors that led the rate-setting committee to vote for a rate cut. 
   
Bond prices, which move inversely to yields, have been soaring over the past few weeks as investors bet that the central bank would trim its base interest rate in the coming months.
   
Also, repeated calls by South Korean Finance Minister Choi Kyung-hwan to trim the base rate put more pressure on the BOK to conduct further monetary easing.
   
The Korean won, meanwhile, rose to the U.S. dollar, changing hands at 1,064.25 won as of 1:35 p.m., up 0.25 won from the previous session's close, as exporters unloaded dollars. 
   
Market watchers say the won may lose ground against the greenback following the rate cut and amid growing concerns over a protracted slump in the global economy. (Yonhap)