S.Korea bonds tumble as inflation fears rise

(Updates to close)

SEOUL, June 9 (Reuters) - South Korean government bond prices
tumbled on Monday, as soaring oil and a weaker local currency
fanned inflation worries, triggering bets that the central bank
may hike interest rates to calm consumer prices.

The yield on benchmark five-year treasury bonds KR5YT=KSDA
shot up 20 basis points to 5.80 percent, the highest level since
hitting 5.84 percent Jan. 10, while three-year treasury bonds
KR3YT=KSDA climbed 19 basis points to 5.67 percent.

"Nobody wants to buy bonds at this point with inflation bound
to rise higher as oil prices hit one record after another," said
a dealer at Hyundai Securities.

"Some are even willing to bet that the central bank may lift
interest rates to control inflationary pressures," the dealer
added.

Oil fell by more than $1 on Monday as traders booked profits
from crude's biggest one-day jump on Friday, when local financial
markets were closed for a national holiday, but OPEC's resistance
to pumping more oil kept prices near their latest record high.

The South Korean won KRW= slipped against the dollar on
Monday, hitting a one-week low after record oil added to the
country's import prices, which hit a near decade-high in April.

Analysts say the oil price rally will aggravate inflationary
pressure in the coming months. South Korea's consumer inflation
rate hit a seven-year high in May, rising 4.9 percent from a year
earlier.

New bond supplies were also weakly received, with investors
buying only a total 1.83 trillion won ($1.78 billion) worth
during three separate monetary stabilisation bond auctions during
the day, much less than the 4 trillion won planned previously.

Also on the supply front, the Finance Ministry sold 1.57
trillion won worth of five-year treasury bonds on Monday.

Meanwhile, government data showed that soaring oil and food
prices pushed consumer sentiment down to a seasonally adjusted
90.9 in May -- the lowest since hitting 90.3 in January 2005 --
from 97.7 in April. [ID:nSEO289730]

The data helped briefly shave the sharp falls in treasury
bond futures but were largely shrugged off as signs that domestic
demand will deteriorate further had been widely expected,
analysts said.

June treasury bond futures KTBc1 plunged 52 ticks to
106.10, and Seoul shares .KS11 dropped 1.27 percent.

close prev close
5-yr treasury bonds KSDA02 5.80 pct 5.60 pct
3-yr treasury bonds 5.67 pct 5.48 pct
1-yr monetary stabilisation bonds 5.38 pct 5.27 pct
3-mth certificates of deposit 5.36 pct 5.36 pct
Average call rate 1SYR=KMBC 4.84 pct ~
6-mth *KORIBOR KIKRW= 5.48 pct 5.48 pct
* Korea interbank offered rate
~ not quoted
(Reporting by Lee Jin-joo; editing by Jonathan Hopfner)