이 기사는 2020년 03월 26일 08:00 thebell 에 표출된 기사입니다.

South Korea’s financial authorities will reactivate a bond market stabilization fund worth 10 trillion won to help stabilize financial markets roiled by the spread of the coronavirus. Market insiders stress that the fund has to focus on newly issued corporate bonds and commercial papers in order to fulfill its objective.

The bond market stabilization fund will be reactivated on April 1. Financial Services Commission chief Eun Sung-soo’s recent meeting with the heads of eight banks has accelerated the move. Ten trillion won will be activated first, while the rest would be dealt with later.

South Korea’s bond market has welcomed the reactivation of the fund, but demanded to take a different approach compared to that of 2008. Market insiders note that the fund should focus on newly issued corporate bonds and commercial papers above all.

When South Korea launched its bond market stabilization fund during the global financial crisis in 2008, the fund invested in bank bonds, corporate bonds and bonds issued by credit finance corporations that have a credit rating of AA- or above, project financing asset-backed commercial papers (PF ABCP) with a credit rating of A2- or above and primary collateralized bond obligations (P-CBO). Bonds with a credit rating of AA- or lower received funding in the form of P-CBOs. Not only non-financial firms that were on the verge of a capital crunch but also financial firms including banks, capital firms and card companies were among beneficiaries of the fund.

During the 2008 financial crisis, the bond market stabilization fund acquired both bonds that are newly issued and traded on the secondary market. The measure indeed was to stabilize rates, but money from the bond market stabilization fund ultimately flows into investors if bonds in the secondary market are acquired. The fund will be able to fulfill its original objective of easing the liquidity crunch for low-rated companies only when it purchases newly issued bonds.

Market insiders stress that the fund has to focus on the stabilization of the bond market to fully play its role. They say that the fund won’t be able to ease the credit crunch if fund managers concentrate on investors’ profitability and stability.

In 2008, the bond market stabilization fund formed eight sub-funds, two each under four categories including bank bonds, corporate bonds, PF-ABCP and P-CBO, and bonds issued by credit finance corporations. At that time, the country created the fund amounting to four trillion to five trillion won. Most of the money went into PF-ABCP and P-CBO, while bank bonds and bonds issued by credit finance corporations accounted for around 10 percent, respectively.

While most market insiders say that the government’s reactivation of the bond market stabilization fund has eased anxieties about the credit crunch in the short term, some note that the market shouldn’t be overly optimistic about what the fund achieved in 2008.

After the launch of the fund, credit spread, the difference in yield between corporate bonds with a credit rating of AA- and government bonds of the same maturity, seem to have dropped to 150 basis points from 450 basis points. In fact, concerns over the financial crisis have quite eased during the same period, thanks to major economies’ rate cuts and liquidity supply.

For companies who were in a severe cash crunch, it took too long to securitize their assets as the fund couldn’t directly buy lower-rated corporate bonds but could only buy them in the form of asset-backed securities.

A brokerage official said that not only the latest bond market stabilization fund has to be used to buy newly issued corporate bonds and commercial papers but also the government has to come up with follow-up measures.

(By reporter Yang Jung-woo)