BOK to pour up to 5 tln won into bond fund

SEOUL, Nov. 23 (Yonhap) -- South Korea's central bank is likely to inject up to 5 trillion won (US$3.3 billion) into an envisioned bond fund aimed at stabilizing the local debt market reeling from a credit squeeze, sources said Sunday.

The Financial Services Commission (FSC), the nation's financial watchdog, plans
to create a 10-trillion-won fund by pooling money from banks, the state pension
fund and other institutional investors.
According to the sources, the Bank of Korea (BOK) is highly likely to contribute
4 trillion won to 5 trillion won to the bond fund which will be used to buy
financial and corporate debts.
The BOK is slated to hold a policy meeting on Monday to finalize the amount.
Market watchers expect the BOK to support the fund by purchasing treasury bonds
from banks or insurers through the central bank's 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.
The establishment of the bond fund comes as the local bond market has been
rattled by a lack of debt buyers. Banks and other major investors have been
reluctant to invest in bonds amid a severe credit squeeze.