Bond market stabilization fund sets sail

(ATTN: ADDS more details of BOK's contribution to bond fund from para 5)
SEOUL, Dec. 17 (Yonhap)-- Banks, insurers and brokerage houses launched a 10 trillion won (US$7.57 billion) bond fund on Wednesday in an effort to stabilize the local debt market, a main asset-manager for the fund said.
The bond fund will be in place for three years and used to purchase debts from
banks and non-financial companies with money chipped in by a total of 91
institutional investors, KDB Asset Management Co. said in a statement. The fund
will start with a 5 trillion won pool, it added.
"The fund will be operated in a way that provides liquidity to companies facing
temporary cash shortages," the firm said.
The South Korean debt market has been frozen as local banks and companies
encounter difficulty in raising funds through bond sales, as buyers have been
scared off by the collapse of U.S. investment bank Lehman Brothers Holdings Inc.
In a separate statement, the Bank of Korea (BOK), the country's central bank,
said it has supplied 2.07 trillion won to a total of 46 financial firms to help
enable them to contribute proceeds to the bond fund.
In late November, the BOK said it plans to provide up to 5 trillion won to the
fund or match up to 50 percent of contributions by financial firms.
The BOK pumped 1.87 trillion won to the fund by buying repurchase agreements and
contributed 199.8 billion won by purchasing treasury bonds held by those firms
and buy back currency stabilization bonds before maturity, it added.
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 long-dated repurchase
agreement deals.
Bond prices -- which move inversely to yields -- closed slightly higher. The
return on three-year Treasuries shed 0.01 percentage point to 3.84 percent and
the benchmark yield on five-year government bonds also fell 0.02 percentage point
to 4.19 percent.
sooyeon@yna.co.kr
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