S.Korean financial markets hit hardest on political turmoil in Libya (3)

20:57, February 22, 2011      

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South Korea's treasury bond yields dropped sharply as foreign investors took massive long positions on the local treasury futures, reflecting tumbling local stocks and rising tensions in the Middle East.

Foreigners bought a net 9,778 March contracts for the nation's three-year treasury futures, according to the Korea Exchange, South Korea's bourse operator. Prices in March contracts for three- year bond futures climbed 0.31 point to 102.85.

Foreigners interpreted the surging oil prices as a signal of economic downturn, not as rising inflationary pressures, experts said.

"In the normal bond market, increasing oil prices hurt investors' sentiment because higher oil prices spark concerns over inflationary pressures," Lee Sang Jae, an economist at Hyundai Securities in Seoul, told Xinhua. "But, domestic investors regarded the Libyan turmoil as a sign of potential economic slump, resulting in firmer appetite for relatively safe government bonds. "

"Rising oil prices traditionally trigger an increase in treasury bond yields, but the rates dropped Monday, reflecting worries about potential stagflation," Yum Sang-hoon, a Seoul-based analyst at SK Securities, said by phone. "Dubai crude jumped as geopolitical risks in the Middle East added fuel to global inflationary pressures amid spreading concerns that stronger cost burden for companies from higher oil prices could drive the global economy into stagnation."

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