[뉴스토마토 박준형 기자] The national financial market is shaking due to the Legoland crash. Tension in the bond market is spreading across the financial market. Although the financial authorities decided to implement a liquidity provision program worth more than 50 trillion won to prevent a monetary tightening, the Bank of Korea intervened as market concerns persisted.
From next month it plans to provide liquidity, directly or indirectly, to banks and securities firms. As concerns grew that the Legoland crash could lead to a crisis in the Korean economy, he suggested a plan that could have an immediate effect.
The financial investment industry has diagnosed that this measure would be effective in stabilizing the market right now. We believe the BOK’s measures to expand eligible secured loans will be of immediate help. However, some point out that it is highly likely to have only a short-term effect.
On the 27th, the Monetary Policy Committee of the Bank of Korea decided to broaden the objective of trading in eligible collateral. Existing government bonds, MSBs, government-backed bonds, Korea Housing Finance Corporation mortgage-backed securities (MBS), and special bank bonds covered only bank bonds and bonds issued by nine public institutions. The application period is 3 months from the 1st of the following month to the end of January of the following year.
Qualifying collateral are collateral that the BOK accepts when lending to commercial banks. These are mainly government bonds, monetary stabilization bonds and government-guaranteed bonds. With this decision, banks will be able to provide the BOK with bank bonds and government bonds issued by nine public institutions as eligible collateral. There is no need to issue multiple bank bonds or guarantee cash to meet the liquidity coverage ratio (LCR).
Direct liquidity provision measures have also been introduced here. The Bank of Korea will temporarily purchase RP worth 6 trillion won from institutions subject to repurchase agreements (RPs), such as securities firms and securities financing firms, until the end of January next year. Securities brokerage firms, etc. they will be able to sell their bank bonds or KEPCO bonds to the BOK and receive funds.
The BOK estimated that domestic banks would be able to guarantee additional liquidity of 29 trillion won as it cleared roadblocks of banks and securities firms.
Securities analysts felt the BOK measures would be of more immediate help. The Bank of Korea believes that bank bonds and KEPCO bonds will be included as eligible collateralised securities, which will greatly help stabilize the market.
Hwa-jin Lee, a researcher at Hyundai Motor Securities, said: “This is a more effective and useful policy than the one announced on the 23rd.” “Even after the BOK announced the 50 trillion won support plan on the 23rd, public and private bonds continued to bid (unsold) and the credit spread continued to widen,” Lee said. It was not easy to secure liquidity in insurance and securities themselves, “He said. He added:” If this measure and the fund operation are implemented, credit distrust is expected to be eased. “
After the announcement of the measures, the market shows an effect. Government bond yields are stabilizing and bank bond issuance has turned negative. According to the Financial Investment Association, the yield on 3-year government bonds in the Seoul bond market on the 28th fell by 0.142 percentage points from the previous chapter to 4.112%, and long-term bonds at 10 and 20 years and 2- complex 5-year bonds and all fell. Corporate bonds also fell. The yield on AA 3-year corporate bonds traded at 5.487%, down 0.133 percentage points from the previous day. The issuance of bank bonds by banks also fell. From the 21st to the 28th, the net issuance of bank bonds went negative (-) to 710 billion won.
Although expectations for an immediate stabilization of the market are high, it is expected that it will take some time for the investment sentiment in the bond market to recover. As the underlying cause of interest rate hikes will not stop, we believe the impact will only be in the short term.
In fact, while the monetary tightening policies of the main countries continue, the credit spread continues to widen. As credit spreads widen, credit bond prices fall, which increases the cost burden on companies to raise funds. The credit spread, the difference between 3-year government bonds and 3-year (AA-grade) corporate bonds, rose to 1.375 percentage points on the 28th. It is the first time in 13 years and 2 months since August 2009 that the credit spread exceeded 1.37 percentage points.
An Ye-ha, a researcher at Kiwoom Securities, said: “We believe this measure is an appropriate level of policy to alleviate short-term market instability. It’s good to see,” he said.
The market is paying attention to the possibility of stabilizing the bond market as the Bank of Korea provides liquidity to prevent the “hardening of money” triggered by the Legoland crash. (Photos = News)
Junhyung Park reporter [email protected]
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