South Korea’s bonds rose, pushing the three-year yield to a record low, and the won fell for a third day as a deteriorating outlook for the economy spurred speculation interest rates will be cut.
Gross domestic product rose in the second quarter at the slowest pace in two years, data showed Thursday, and Finance Minister Choi Kyung Hwan was cited by the Wall Street Journal as saying the government lowered its 2016 growth forecast to 3.3 percent from 3.5 percent. Exports dropped in August by the most since 2009, the government reported this week. The Bank of Korea reduced its benchmark interest rate to an unprecedented 1.5 percent in June and next meets to review borrowing costs on Sept. 11.
The yield on government debt due June 2018 fell two basis points to 1.66 percent as of 10:20 a.m. in Seoul, the lowest for a benchmark three-year note in Bloomberg data going back to 2000. It dropped six basis points this week. The 10-year yield declined two basis points since Aug. 28 to 2.28 percent.
"The market is already betting on a rate cut, which would be a reasonable move," said Kong Dong Rak, a fixed-income analyst at Korea Asset Investment Securities Co. in Seoul. "Investors fled to the safety of bonds as anxiety in stocks and the currency market continued this week."
The won weakened 0.1 percent on Friday and 1.5 percent from a week ago to 1,192.24 a dollar, data compiled by Bloomberg show. Overseas investors were net sellers of Korean stocks for the 22nd day in a row and have pulled more than $5.5 billion out of the securities this quarter. The Kospi index of shares fell 1.6 percent this week.South Korea’s exports plunged 14.7 percent in August from a year earlier, an eighth straight decline, and GDP increased 2.2 percent in the second quarter.