Tuesday, July 24, 2007

Moody's Upgrade Sovereign Rating

From Bloomberg this morning:

South Korean Won Rises to Highest Since 1997 on Growth, Moody's

July 25 (Bloomberg) -- The South Korean won rose, matching the highest since 1997, after economic growth accelerated to the fastest in 1 1/2 years and Moody's Investors Service upgraded the country's debt ratings.

Government and central bank concerns that the won's 1.7 percent advance this year would hurt exports may prove unfounded as overseas shipments gained 5.2 percent in the second quarter, nearly double the 2.7 percent increase in the prior three months. Moody's raised the sovereign rating one level to A2, citing ``fiscal prudence.''

``Whilst we don't expect any sharp moves on the back of a stronger economy the won can go stronger,'' said Magnus Prim, a senior foreign-exchange strategist at Skandinaviska Enskilda Banken in Singapore. ``Though the view from the authorities is that they don't want it too much stronger.''

The currency rose as much as 0.1 percent to 913.00, matching the level reached Dec. 7 that was the highest since October 1997. It traded at 913.35 as of 1:52 p.m., according to Seoul Money Brokerage Services Ltd. The currency may strengthen to 910 in one month, said Prim.

Vice Finance Minister Kim Seok Dong warned July 19 the government is ``focusing'' on gains in the won.

Korea's economy expanded 1.7 percent from the first quarter, the Bank of Korea said in Seoul today, faster than the 1.3 percent median estimate of 11 economists in a Bloomberg News survey. From a year earlier, the economy grew 4.9 percent.

Moody's Rating Upgrade

The ratings upgrade comes after Moody's put the nation under review July 3. The move puts South Korea's rating on par with China, Hungary and Israel. A higher debt rating signals a lower risk of debt default and may help reduce South Korea's borrowing costs.

Benchmark five-year bond yields, which move inversely to the price, declined 2 basis points to 5.45 percent, according to Korea Exchange. The price of the 4 3/4 percent note due March 2012 rose 0.09, or 9 won per 10,000 won face amount, to 98.94.

``Yields aren't moving much because investors are taking a wait-and-see attitude after the recent rate increase by the central bank,'' said Lee Yong Gyoo, a general manager at Hanwha Securities Co.'s fixed-income management team. ``This may continue until the release of key economic data later this month.''

The Bank of Korea July 12 raised its benchmark interest rate for the first time in a year to 4.75 percent on concern record lending to small- and mid-sized companies may spur inflation.

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