S. Korean bonds down on stronger retail sales, Yellen comments

The South Korean government bonds closed lower on Monday after data showed that retail sales jumped at their fastest pace in three months in April. Also, investors drove-out from safe-haven buying after hawkish Yellen remarks. The 10-year bonds yield, which is inversely propositional to bond price rose 3 basis points to 1.811 percent and short-term 3-year bonds yield also climbed 3 basis points to 1.505 percent.

The South Korean retail sales data yesterday showed department store sales increased 4.3 percent y/y in April after rising 0.3 percent y/y in March. Moreover, discount store sales edged up 1.7 percent y/y in April after declining 4.6 percent y/y in March. Similarly, manufacturers' confidence rose to 74 in June from 73 in May.

In addition, the Fed Chair Yellen on Friday said that if economic gains continue and if the labour market continues to improve that it is appropriate for the Fed to gradually and cautiously increase our overnight interest rate over time and probably in the coming months, such a move would be appropriate. Although lacking a time factor, this continues to point to increased support for a summer rate hike from the FOMC.

Last week, according to Donn-A Ilbo newspaper, the South Korea's government will cut its 2016 growth forecast to below 3 percent from 3.1 percent when it releases economic policy plans for H216 in June.

The Bank of Korea’s Monetary Policy Board in its May monetary policy meeting unanimously decided to maintain the key policy rate at 1.5 percent and also did not make any considerable changes in May’s policy statement. According the monetary policy’s board concluded that the global economy will continue with its recovery, but at a slower pace. Meanwhile, the central bank of Korea foresees modest rebound in the Korean economy, especially domestic demand. However, it is highly uncertain regarding the growth trajectory and projected the CPI inflation to remain at low levels.

Meanwhile, The Korea Composite Stock Price Index (KOSPI) closed down 0.10 percent at 1,967.31 points.