ID :
35916
Tue, 12/16/2008 - 15:26
Auther :
Shortlink :
http://m.oananews.org//node/35916
The shortlink copeid
Bond fund to help stabilize wobbling debt market: experts
SEOUL, Dec. 16 (Yonhap) -- South Korea's envisioned bond fund is widely expected to help ease a credit crunch in the local debt market, but the slowing economy and lingering credit risks could put a crimp on long-term stabilization, analysts said Tuesday.
Local banks, insurers and brokerage houses are poised to launch a 10-trillion-won
(US$7.39 billion) bond fund this week which will be run for three years and used
to purchase corporate bonds and debts issued by banks and other financial firms.
The Bank of Korea (BOK), the country's central bank, also pledged to provide up
to 5 trillion won to the fund or match up to 50 percent of contributions by
financial firms.
"The launch of the bond fund would mark a turnaround and help thaw the frozen
debt market on the back of key rate cuts and the central bank's continued
liquidity supply," said Kong Dong-rak, a fixed income analyst at Hana Daetoo
Securities Co.
The South Korean debt market has been frozen as local banks and companies are
having difficulty raising funds through bond sales amid a lack of buyers scared
off by the failure of U.S. investment bank Lehman Brothers Holdings Inc.
Despite steep rate cuts, market interest rates like yields on certificates of
deposit (CDs) or bank debts have remained at a high level, deepening a credit
crunch in the local bond market.
On Thursday, the central bank cut the key interest rate by a record one
percentage point to an all-time low of 3 percent. Since early October, the
central bank has trimmed the rate by a combined 2.25 percentage points.
Although market interest rates fell in recent sessions, affected by record rate
cuts, risk aversion in the corporate debt market still persists.
The returns on three-year corporate bonds rated AA- jumped to a yearly high of
8.91 percent on Dec. 1 and the yields on three-year corporate debt rated BBB-
soared to 12.27 percent as of Tuesday.
Experts, however, warned that the slowing economy and global financial turmoil
may continue to weigh on the market, and it may be too early to say that market
rates will be on a downward trend over the long haul.
"It is unclear whether market interest rates will be on a downward trend as there
is a possibility that the ongoing economic slowdown could hurt the financial
health of local financial firms," said Choi Seok-won, a senior analyst at Samsung
Securities Co.
The South Korean economy expanded 0.5 percent in the third quarter from three
months earlier, the weakest growth in four years, as exports faltered amid
sluggish domestic demand. The BOK expects Asia's fourth-largest economy to grow 2
percent next year, down from an estimated 3.7 percent gain this year.
Kong at Hana Daetoo said along with the launch of the fund, it is important for
the government to continue to give confidence to market players by increasing the
liquidity supply or other policy options.
On Monday, the central bank said it would pump a combined 6.5 trillion won in
liquidity into the financial system this week by buying longer-dated repurchase
agreement deals. The government and the central bank have supplied or plan to
supply a combined amount in excess of 130 trillion won in liquidity into the
financial system.
sooyeon@yna.co.kr
(END)
Local banks, insurers and brokerage houses are poised to launch a 10-trillion-won
(US$7.39 billion) bond fund this week which will be run for three years and used
to purchase corporate bonds and debts issued by banks and other financial firms.
The Bank of Korea (BOK), the country's central bank, also pledged to provide up
to 5 trillion won to the fund or match up to 50 percent of contributions by
financial firms.
"The launch of the bond fund would mark a turnaround and help thaw the frozen
debt market on the back of key rate cuts and the central bank's continued
liquidity supply," said Kong Dong-rak, a fixed income analyst at Hana Daetoo
Securities Co.
The South Korean debt market has been frozen as local banks and companies are
having difficulty raising funds through bond sales amid a lack of buyers scared
off by the failure of U.S. investment bank Lehman Brothers Holdings Inc.
Despite steep rate cuts, market interest rates like yields on certificates of
deposit (CDs) or bank debts have remained at a high level, deepening a credit
crunch in the local bond market.
On Thursday, the central bank cut the key interest rate by a record one
percentage point to an all-time low of 3 percent. Since early October, the
central bank has trimmed the rate by a combined 2.25 percentage points.
Although market interest rates fell in recent sessions, affected by record rate
cuts, risk aversion in the corporate debt market still persists.
The returns on three-year corporate bonds rated AA- jumped to a yearly high of
8.91 percent on Dec. 1 and the yields on three-year corporate debt rated BBB-
soared to 12.27 percent as of Tuesday.
Experts, however, warned that the slowing economy and global financial turmoil
may continue to weigh on the market, and it may be too early to say that market
rates will be on a downward trend over the long haul.
"It is unclear whether market interest rates will be on a downward trend as there
is a possibility that the ongoing economic slowdown could hurt the financial
health of local financial firms," said Choi Seok-won, a senior analyst at Samsung
Securities Co.
The South Korean economy expanded 0.5 percent in the third quarter from three
months earlier, the weakest growth in four years, as exports faltered amid
sluggish domestic demand. The BOK expects Asia's fourth-largest economy to grow 2
percent next year, down from an estimated 3.7 percent gain this year.
Kong at Hana Daetoo said along with the launch of the fund, it is important for
the government to continue to give confidence to market players by increasing the
liquidity supply or other policy options.
On Monday, the central bank said it would pump a combined 6.5 trillion won in
liquidity into the financial system this week by buying longer-dated repurchase
agreement deals. The government and the central bank have supplied or plan to
supply a combined amount in excess of 130 trillion won in liquidity into the
financial system.
sooyeon@yna.co.kr
(END)
