Dec. 6 (Bloomberg) -- China increased holdings of South Korean government bonds in November by the most in six months, taking advantage of a retreat in the won.
Net purchases of Korean Treasury bonds amounted to 556 billion won ($490 million), 27 percent more than in October, according to data released today by South Korea’s Financial Supervisory Service. Total holdings increased 9.9 percent to 6.14 trillion won, more than triple the level at the start of 2010. The won’s 2.9 percent slide versus the dollar in November marked its biggest decline since May.
"For investors looking at Korean bonds as a long-term investment, a weaker won gives them the opportunity to buy the bonds at a cheaper cost,” said Choi Woon Kon, head of the securities market team at the financial regulator.
The yield on the 3.75 percent South Korean Treasury bond due June 2013 touched 3.03 percent today, the lowest level since Bloomberg started compiling the data in 2000. It was unchanged at 3.12 percent as of 1:11 p.m. in Seoul compared with the rate on Dec. 3, according to the Korea Stock Exchange.
China Diversification
China is considering allocating more of its $2.65 trillion foreign-exchange reserves to emerging-market currencies to boost returns, central bank Governor Zhou Xiaochuan said in October. The nation’s holdings of U.S. Treasuries fell 1.3 percent in the first nine months of this year to $883.5 billion and the Federal Reserve’s benchmark interest rate of a maximum 0.25 percent compares with 2.5 percent in South Korea.
"Chinese authorities have every incentive to diversify their reserves and KTBs are a good avenue for this,” said Christian Carrillo, head of Asia-Pacific interest-rate strategy at Societe Generale SA in Tokyo. “I estimate net KTB supply to fall next year but Chinese demand could be reasonably stable. So, Chinese demand becomes more important.”
Korean government debt has returned 8.5 percent this year, delivering a profit every month except October, according to an index compiled by HSBC Holdings Plc. U.S. Treasuries have returned 7.8 percent, according to Bank of America Merrill Lynch’s Treasury Master Index.
China’s holdings of South Korean notes account for about 0.2 percent of its foreign-exchange reserves, which are the world’s largest. Overseas investors owned 80 trillion won of Korean debt at the end of November, 7.2 percent of the country’s outstanding bonds, today’s data showed.
