South Korean Yield Curve Steepens Slightly

The yield curve in South Korea has steepened a touch as the won strengthens to the highest levels since mid-2018 against the US dollar and set for its fifth consecutive week of gains against the US dollar.

• The Kospi index has risen to end the week, hitting 2,741 and set for the fourth consecutive record close.
• The won is now set for the fifth straight week of gains against the US dollar. This persistent gain has sparked rumours among traders of Bank of Korea intervention in the local currency as the economic recovery is dependent on exports.
• The currency has gained almost 7% in Q4, but this does not seem to have had too much of an impact on exporters yet, with data earlier in the session showing largest current-account surplus since September 2017.
• The market largely shrugged off the news that the South Korean National Assembly passed the 2021 budget with minor amendments, keeping its expansionary stance. The 2021 budget includes fiscal spending that is around KRW 2.2tn more than in the proposed budget. However, despite expansionary policy total fiscal spending is similar levels in 2020.The new plans would bring national debt to 47.3% of GDP, up from the expected 43.9% in 2020
• South Korean 3-year yields down around 1.3bps at 0.971%, 30-year yield down around 0.3bps to 1.727%, resulting in some curve steepening. 3-/30-year spread last around 1bps wider at 75.6bps