S. Korean bonds gain on weak growth outlook

The South Korean bonds gained on Tuesday as South Korea's government is expected to lower its 2016 growth forecast to below 3 percent. Meanwhile, the 10-year bonds yield, which is inversely propositional to bond price fell 3bps to 1.777 percent and long-term twenty year bonds yield also dipped 3bps to 1.879 percent by 0535 GMT.

According to latest report from 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.

Moreover, there is no key release this week but it is worth pointing out that April IP is due the following week. Recall that March IP data showed output contracting by 1.5% y/y (consensus was for +0.3% y/y) and on a sequential basis, IP contracted by 2.2% m/m s-adj in March. Still, the BoK’s business sentiment survey showed the manufacturers’ confidence index increasing to 73 in May from 70 in April.

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 pct 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) trading down 0.69 pct at 1,941.67 points by 0220 GMT.