October 25, 2022: -South Korea’s government is developing its corporate bond-buying program, among different liquidity supply measures, amid growing worries about a credit crunch in bond and short-term money markets.
The administration will double the ceiling of its corporate bond-buying facility run by state-run banks to 16 trillion won, Minister of Economy and Finance Choo Kyung-ho said.
The measure aims to ease volatility and concern about tight liquidity in corporate bond and short-term money markets, Choo added after a meeting with top financial officials, which include the central bank governor and regulatory chief.
Commercial paper issued by securities companies will be included in the facility’s purchase list. At the same time, he said an additional 3 trillion won of liquidity would be supplied by the Korea Securities Finance Corp for securities firms that see liquidity shortages.
Governor Rhee Chang-Yong stated to the reporters that the Bank of Korea’s monetary policy board would also feel its measures, such as reactivating a particular purpose vehicle to buy corporate bonds and commercial paper, were preferably introduced during the pandemic.
But the premises of macroeconomic monetary policy are not changed as this issue is temporary and particular to the commercial paper market.
There have been growing worries regarding signs of stress in South Korea’s short-term money market. The central bank has raised its policy interest prices by 250 basis points since August of the previous year from a record-low 0.5% to contain inflation.
The official end-of-day yield on a 91-day commercial paper rose to 4.25% from 1.55% at the beginning of the year, with the spread more than the central bank’s policy rate enlarging to 125 basis points from 48 basis points more than the same period.
To help ease the situation, the Financial Services Commission on Thursday said it would take six months to normalize banks’ requirements to hold liquid assets.
Also, South Korea’s bond market stabilization fund will begin buying corporate bonds and saleable paper worth up to 1.6 trillion won from Monday.