ID :
32139
Tue, 11/25/2008 - 14:23
Auther :
Shortlink :
https://www.oananews.org//node/32139
The shortlink copeid
BOK to inject up to 5 tln won into bond fund
(ATTN: RECASTS lead; UPDATES with analyst's quotes and comments by financial
watchdog throughout)
By Kim Soo-yeon
SEOUL, Nov. 24 (Yonhap) -- South Korea's central bank said Monday it will inject
up to 5 trillion won (US$3.33 billion) into an envisioned bond fund aimed at
stabilizing the local debt market.
The Financial Services Commission (FSC), the country's financial watchdog, plans
to create a 10 trillion won fund into which banks, the state pension fund and
other institutional investors would pool money to buy financial and corporate
debts. The state-run Korea Development Bank plans to invest 2 trillion won in the
fund.
"The BOK has decided to contribute a maximum of 5 trillion won to the fund or
match up to 50 percent of contributions by financial firms in a bid to help thaw
the frozen debt market," Lee Ju-yeol, a deputy governor at the Bank of Korea
(BOK), told a press conference.
The official said the proposed fund would help drag money market rates down, thus
easing credit crunch facing local companies.
The BOK said it plans to purchase treasury bonds held by banks, insurers and
securities firms or buy back currency stabilization bonds before maturity. In
turn, those firms will spend the proceeds in investing in the bond fund. The
central bank said it will also buy bonds partly through its repurchase agreement
operations.
A repurchase agreement is a deal whereby one party sells the other a security at
a specified price with a commitment to buy the security back at a later date. It
is the central bank's main method of releasing liquidity into the market in a
credit crunch and siphoning off excess liquidity.
There have been concerns that cash-squeezed local banks may be lukewarm towards
the fund and unload their government bond holdings to secure much-needed cash.
In early November, the BOK slashed its key interest rate to 4 percent, cutting a
combined 1.25 percentage point in the span of a month.
Despite the steep rate cuts by the BOK, the yields of the corporate bonds or
certificates of deposit (CDs), which serve as the benchmark rate for the market,
have not fallen as much as expected, deepening a credit squeeze in the debt
market.
"Basically, the central bank prints money to purchase treasury bonds or buy
currency stabilization bonds before maturity," explained Chung Hee-chun, director
general of the BOK's financial markets department.
"The BOK will make efforts to stabilize the financial markets by offering
liquidity in a timely manner," Lee added.
Last week, the central bank said it was not considering buying commercial papers
held by companies or CDs as a way to provide liquidity to the fund, adding that
the government has not asked the central bank to do so.
"The BOK's move reflects its strong will to stabilize the financial markets and
to cooperate with the government to ease the credit squeeze," Kim Joo-hyun,
director-general at the FSC's financial policy bureau, told reporters.
Kim added that the watchdog plans to launch the fund after completing
consultations with related agencies.
Analysts said the move may help ease some jitters in the market, but added that a
steady liquidity supply is needed to stabilize the market.
"The amount of liquidity supply itself is widely expected in the market. The
impact of the move may be neutral in the market in the short term," said Kong
Dong-rak, a fixed income analyst at Hana Daetoo Securities Co. "But the BOK's
pledge to offer additional liquidity seems to be meaningful as it opened the door
for more actions."
Despite the BOK's announcement, bond prices, which move inversely to yields,
dropped. The return on benchmark three-year Treasuries rose 0.07 percentage point
to 5.06 percent and the yield on five-year government bonds added 0.07
percentage point to 5.21 percent.
In 1999, South Korea created a similar bond fund to stabilize the debt market,
which was severely dented in the aftermath Daewoo Group's collapse. Banks and
insurers initially put 10.5 trillion won into the fund. The pool at one point was
valued at nearly 30 trillion won.
sooyeon@yna.co.kr
(END)
watchdog throughout)
By Kim Soo-yeon
SEOUL, Nov. 24 (Yonhap) -- South Korea's central bank said Monday it will inject
up to 5 trillion won (US$3.33 billion) into an envisioned bond fund aimed at
stabilizing the local debt market.
The Financial Services Commission (FSC), the country's financial watchdog, plans
to create a 10 trillion won fund into which banks, the state pension fund and
other institutional investors would pool money to buy financial and corporate
debts. The state-run Korea Development Bank plans to invest 2 trillion won in the
fund.
"The BOK has decided to contribute a maximum of 5 trillion won to the fund or
match up to 50 percent of contributions by financial firms in a bid to help thaw
the frozen debt market," Lee Ju-yeol, a deputy governor at the Bank of Korea
(BOK), told a press conference.
The official said the proposed fund would help drag money market rates down, thus
easing credit crunch facing local companies.
The BOK said it plans to purchase treasury bonds held by banks, insurers and
securities firms or buy back currency stabilization bonds before maturity. In
turn, those firms will spend the proceeds in investing in the bond fund. The
central bank said it will also buy bonds partly through its repurchase agreement
operations.
A repurchase agreement is a deal whereby one party sells the other a security at
a specified price with a commitment to buy the security back at a later date. It
is the central bank's main method of releasing liquidity into the market in a
credit crunch and siphoning off excess liquidity.
There have been concerns that cash-squeezed local banks may be lukewarm towards
the fund and unload their government bond holdings to secure much-needed cash.
In early November, the BOK slashed its key interest rate to 4 percent, cutting a
combined 1.25 percentage point in the span of a month.
Despite the steep rate cuts by the BOK, the yields of the corporate bonds or
certificates of deposit (CDs), which serve as the benchmark rate for the market,
have not fallen as much as expected, deepening a credit squeeze in the debt
market.
"Basically, the central bank prints money to purchase treasury bonds or buy
currency stabilization bonds before maturity," explained Chung Hee-chun, director
general of the BOK's financial markets department.
"The BOK will make efforts to stabilize the financial markets by offering
liquidity in a timely manner," Lee added.
Last week, the central bank said it was not considering buying commercial papers
held by companies or CDs as a way to provide liquidity to the fund, adding that
the government has not asked the central bank to do so.
"The BOK's move reflects its strong will to stabilize the financial markets and
to cooperate with the government to ease the credit squeeze," Kim Joo-hyun,
director-general at the FSC's financial policy bureau, told reporters.
Kim added that the watchdog plans to launch the fund after completing
consultations with related agencies.
Analysts said the move may help ease some jitters in the market, but added that a
steady liquidity supply is needed to stabilize the market.
"The amount of liquidity supply itself is widely expected in the market. The
impact of the move may be neutral in the market in the short term," said Kong
Dong-rak, a fixed income analyst at Hana Daetoo Securities Co. "But the BOK's
pledge to offer additional liquidity seems to be meaningful as it opened the door
for more actions."
Despite the BOK's announcement, bond prices, which move inversely to yields,
dropped. The return on benchmark three-year Treasuries rose 0.07 percentage point
to 5.06 percent and the yield on five-year government bonds added 0.07
percentage point to 5.21 percent.
In 1999, South Korea created a similar bond fund to stabilize the debt market,
which was severely dented in the aftermath Daewoo Group's collapse. Banks and
insurers initially put 10.5 trillion won into the fund. The pool at one point was
valued at nearly 30 trillion won.
sooyeon@yna.co.kr
(END)
