Korean Won Gains as Foreign-Exchange Shortage Eases; Bonds Rise

By Kim Kyoungwha

Dec. 16 (Bloomberg) -- South Korea’s won rose for a second day on signs dollar hoarding is easing, helping banks and companies pay their foreign debt. Bonds rose.

The won is headed for its first monthly gain since July as policy makers cut interest rates at an unprecedented pace to stem an economic slowdown and currency swap deals with China and Japan are expanded to help ease a shortage of foreign exchange. The Bank of Korea sold $50 million to local banks in the swap market, less than a planned $1 billion, the bank said today, adding to evidence dollars are becoming more available.

“Trading is very shallow as many market players closed books before year-end,” said Kim Yule, a currency dealer with BNP Paribas in Seoul. “There’s a slight improvement in the shortage of dollars.”

The won rose 0.7 percent to 1,357 per dollar as of 12:40 p.m. in Seoul, after earlier weakening as much as 0.5 percent, according to Seoul Money Brokerage Services Ltd. The currency is still down 31 percent this year, Asia’s worst performance.

The one-year cross currency swap stood at 0.9 percent, having recovered from a record low of minus 0.7 percent on Dec. 4. The rate, a gauge of the availability of dollar funding, averaged 3.3 percent this year before the collapse of Lehman Brothers Holdings Inc. in mid-September triggered a seizure in global credit markets.

Standard Chartered recommended buying a three-month won call option at 1,280 and selling put options at 1,350 as it predicts the won will climb to 1,300 per dollar in the first quarter before further strengthening to 1,150 by the end of 2009.

Bonds Buyback

Bonds rose after the finance ministry said yesterday that the government will buy back 1.2 trillion won ($879 million) of bonds on Dec. 19. The buyback will include 1 trillion won of government bonds that mature in March and June of 2009 and 200 billion won of inflation-linked debt due March 2017, the ministry said in a statement in Gwacheon yesterday.

The yield on the benchmark bond due September 2013 fell eight basis points to 4.28 percent, according to the Korea Exchange. The price rose 0.37, or 37 won per 10,000 won face amount, to 107.76. A basis point is 0.01 percentage point.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net.