• Is the Bond Market Stabilization Fund sufficient to ease concerns about the liquidity crunch in bond markets? And why?

  • Although the Bond Market Stabilization Fund, worth 10 trillion won, is not large considering the volume of bond markets, we expect the fund contribute to easing liquidity problems by isolating the "temporary vicious cycle", in which contracted transaction leads to a rise in interest rate, a fall in bonds price and an increase in net selling of bonds.

    In addition, the demand for investment grade bonds has recovered mainly thanks to the dramatic fall in the policy rate and the increased supply of liquidity, which drove down the money market rates.

    Unit: trillion won, %
    End of 2006 End of 2007 End of Jun. 2008 End of 2008 Jan. 12 2009 Jan.13 2009 From the end of 2008
    CP (91-day) 4.97 6.42 5.76 6.39 5.66 5.37 -1.02%
    Corporate bonds(KIS, AA-, 3yr) 5.29 6.77 6.88 7.72 7.46 7.42 -0.30%
    Corporate bonds(KIS, BBB-, 3yr) 8.08 9.12 9.66 12.02 11.92 11.91 -0.11%

    We expect the fund to further contribute to easing of liquidity problems in the bond market, as the fund step in to buy up both non-investment grade corporate bonds and ABCP within the first quarter this year.

    The fund was firstly raised to 5 trillion won and an additional 5 trillion won will be added once it is depleted.

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