The South Korean bonds closed modestly firmer Tuesday as investors pour into safe-haven assets after reading steady April consumer price index (CPI) figure. Also, weak crude oil futures drove investors towards safe assets. The 10-year bonds yield, which is inversely propositional to bond price fell 0.77 pct to 1.794 pct and 3-year bonds yield dipped 1.77 pct to 1.442 pct.
The South Korea’s headline inflation for April stood at 1 pct y/y, in the line of market expectation, as compared to 1 pct in March, mirroring the impacts of weak worldwide oil costs, and darkening the economy's progressing unassuming recuperation. Similarly, it rose 0.1 pct m/m, in the line of market consensus, from down 0.3 pct in March.
The South Korean bonds have been closely following developments in oil markets because of their impact on inflation expectations. Today, crude oil prices tumbled by snapping 6-month high as rising production in the Middle East outweighed a decline in U.S. output and a recent slide in the dollar, which has been supporting crude. OPEC supplies rose to 32.64 million barrels per day in April, from 32.47 million barrels per day in March, according to a Reuters survey. That almost matches January's 32.65 million barrel per day, when Indonesia's return to OPEC boosted production to the highest since at least 1997. The International benchmark Brent futures continue to hover around $46 and West Texas Intermediate (WTI) at $44.
Released on Sunday, the April exports declined 11.2 pct y/y, against market expectation of 11 pct y/y fall, from down 8.1 pct in March. Similarly, the South Korea's industrial production tumbled 2.2 pct m/m in March, against expectation of 0.1 pct m/m rise, from up 3.2 pct in February. On annual basis, it declined 1.5 pct in March; investors were waiting for a rise of 0.8 pct, as compared to prior 2.2 pct.
The markets in the South Korea will now focus on the BoK’s next rate-setting meeting, which is due on Friday, May 13. We expect the BOK to cut in May, after holding its benchmark at a record low 1.5 pct for 10-months. This is supported by the increasing speculation in the market that the BOK may cut borrowing costs that are already at a record low, pushing bonds prices further up. Meanwhile, The Korea Composite Stock Price Index (KOSPI) closed up 0.42 pct at 1,986.41 points.
The material has been provided by InstaForex Company – www.instaforex.com