(Bloomberg) South Korea’s government bonds are offering lower yields than U.S. Treasuries for the first time in nine years as monetary policy outlooks for the nations diverge.
The outbreak of a deadly virus and falling exports are bolstering the case for the Bank of Korea to cut borrowing costs from a record low as Federal Reserve officials weigh the timing of the first U.S. interest-rate increase since 2006. Eleven of 18 economists analysts surveyed by Bloomberg see the BOK easing as early as Thursday after the Middle East Respiratory Syndrome left nine dead and put thousands in quarantine.
South Korea’s 10-year yield was one basis point below that on comparable Treasuries as of 11:17 a.m. in Seoul Wednesday, data compiled by Bloomberg show. The last time the spread was negative was in October 2006. The won fell 0.2 percent to 1,120.85 a dollar and declined 0.2 percent to 9.01 per yen.
“The trend for Korean yields is downward as the economic outlook looks weak, while the U.S. recovery supports case for higher rates,” said Yoon Yeo Sam, a Seoul-based fixed-income analyst at Daewoo Securities Co., South Korea’s biggest brokerage by market value. “The closed yield gap with the U.S. could ignite concerns about outflows.”
The government will provide 400 billion won ($357 million) of financial support to South Korean businesses hurt by the MERS outbreak, Finance Minister Choi Kyung Hwan said Wednesday, a day after President Park Geun Hye asked her cabinet to prepare “all preemptive measures” to minimize the impact. Park also called for steps to revive exports as the won’s recent rise to a seven-year high against the yen hurts shipments.
The Korea Tourism Organization estimates more than 40,000 people have canceled visits, around 2,200 schools are shut and Hyundai Motor Group has suspended official events because of the disease. Exports fell the most in six years in May and business groups said the weak yen is making it tougher to compete with Japanese companies that make cars, steel and electronic goods.
The won has risen against 23 of 31 major currencies in 12 months. It has jumped 10 percent against the yen and 9.3 percent versus the euro, data compiled by Bloomberg show.
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