Economy

China's monetary tightening good to ROK's bond market

(Xinhua)
Updated: 2011-02-22 11:16

SEOUL - China's monetary tightening should be good for South Korea's bond market as it could weaken the country's exports to China, Daewoo Securities said Tuesday.

"China's tight monetary policy could weaken South Korea's economic growth because the country heavily relies on exports demand from China," Yoon Yeo-sam, a fixed-income analyst at Daewoo Securities in Seoul, told Xinhua News Agency.

"The Bank of Korea (BOK) might slow the pace of rate hikes as China's monetary tightening reduces global demand for raw materials, leading to stave off fears of inflation," Yoon said.

Both South Korea's potential economic slowdown and eased inflationary pressures, brought about by China's monetary tightening, would make South Korea's government bonds more attractive, he added.

In terms of tenors of the country's treasury bonds, Daewoo advised investors to buy mid-term bonds, especially 5-year government debt.

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Even if the BOK would raise its key interest rate in March rate-setting meeting, the country's treasury market is unlikely to turn volatile because the market has already priced this in, Yoon said in a report released Monday.

The rolling effect, a strategy to secure capital gains and coupon income by carrying bonds for a certain period of time, remains high in mid-term bonds such as 3-year and 5-year notes, Yoon said.

Among the two mid-term bonds, 5-year is more attractive in the belief that the longer-term bonds are oversold relative to shorter bonds, he added.