South Korea announced that it would issue a bond-market aid package to increase liquidity in the market. This package was called primary-collateralized bond obligations, according to an emailed statement from the Financial Services Commission (FSC).
"This is a preemptive measure in a bid to prevent a possible bond market crisis that may occur when the U.S. reduces liquidity and other countries see more economic and financial market volatility," said FSC Vice Chairman Jeong Chan Woo.
According to the FSC statement, a KRW850 billion guarantee would back the securities. This would be funded by the Korean government and the country's central bank. As much as KRW6.4 trillion or US$5.6 billion refinancing support would be provided for the corporate bond market. This is after debt offerings continue to decline and the market witnessed the highest yields surge in more than 10 month.
According to the Korean Financial Investment Association, the 3-year AA-rated corporate bonds increased to 3.51%, yielding 10 basis points. This represented the highest value it had since August 20.
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