inflation bonds-February tally

SEOUL, March 22 (Yonhap) -- Demand for South Korea's inflation-linked government bonds fell sharply in February from a month earlier, data showed Friday, apparently due to the country's sluggish economic growth.

The combined trading volume of inflation-indexed state bonds came at 301.1 billion won (US$269.7 million) last month, down 64.5 percent from 848.9 billion tallied in January, according to the Korea Exchange (KRX).

Inflation-linked state bonds are designed to provide investors with a hedge against inflation by connecting their yields to the consumer price index released by the state-run Statistics Korea each month.

The trading volume of inflation-linked bonds surged more than three-fold from a month earlier in January as investors sought tax-free investment destinations following South Korea's tightened tax rules on financial assets.

However, the country's consumer prices edged up 1.4 percent last month, hovering below the 2-percent mark for the fourth consecutive month, which came as a major drag on the popularity of inflation-linked bonds.

Market watchers said the yield on inflation bonds is expected to remain stagnant down the road as the country is cautious about implementing economic stimulus measures, while the central bank froze its key interest rate in March.

"Growth in South Korea's consumer price is expected to remain below the 2-percent mark for the time being," said Lee Jong-woo, a researcher at I'M Investment & Securities Co. "The trading volume of inflation bonds will remain stagnant down the road."

South Korea's central bank froze the key interest rate for the fifth straight month earlier in March, apparently awaiting what measures the new government will take to stimulate the slowing economy.

<All rights reserved by Yonhap News Agency>