Korea to deregulate operation of money market funds

SEOUL, March 16 (Yonhap) -- South Korea's financial watchdog said Monday it will
allow money market funds (MMFs) to invest in long-term treasury bonds and
diversify investment portfolios in a bid to help boost demand for state debt.
A money market fund is a pool of money which is mostly invested in short-dated
bonds, commercial paper and certificates of deposit. Deposits at MMFs have
sharply increased as local banks increasingly put money into MMFs rather than
extending lending due to risk aversion, and retail investors have flocked to the
funds due to falling bank deposit rates.
"As short-term money is only parking in MMF accounts without smoothly circulating
in the financial sector, the need to ease rules about the funds has arisen," the
Financial Services Commission (FSC) said in a statement.
The FSC said it will encourage MMF's to invest at least 40 percent of their
assets under management in securities like bonds and commercial paper in an
effort to diversify their portfolios.
The watchdog will also allow MMFs to include in their assets under management
treasury bonds due in more than one to five years, which would help absorb the
expected supply of government bonds. Currently, the funds can only invest in
government debt maturing in less than a year.
The move comes as the government is currently crafting an estimated 30 trillion
won (US$20.7 billion) extra budget to generate jobs and boost the economy. The
supply of treasury bonds is expected to increase as the government plans to sell
more debt to finance a planned additional budget, raising concerns that the move
may lead to higher borrowing costs.
sooyeon@yna.co.kr
(END)