S.Korea to take measures to support stock, bond markets

South Korea is set to take measures to stabilize local stock and bond markets hit by global interest rate hikes amid growing risks of a worldwide economic downturn.

The country’s top financial regulator will prepare to reactivate a stock market stabilization fund of 10.7 trillion won ($7.4 billion), while the government and central bank will inject a total 5 trillion won for local bond markets.

Financial Services Commission Vice Chairman Kim So-young said on Wednesday it will take steps to use the stock market stabilization fund, which the country’s financial authorities raised in March 2020 when the domestic stock markets tumbled due to COVID-19. The fund has yet to be tapped as the market sharply rebounded in 2020-2021.

“The fund will mature in March of next year, so we need to take some measures such as extending its maturity for reactivation,” said Kang Shin-woo, the fund’s head. “We will focus more on exchange-traded funds (ETFs) rather than individual stocks.”

That came after the local stock market fell across the board, hitting its lowest level in more than two years.

$3.5 BILLION FOR BOND MARKETS

The country also decided to take stabilization measures for the bond market as the recent surge in bond yields is feared to hurt growth in Asia’s fourth-largest economy.

The Ministry of Economy and Finance decided it will buy back 2 trillion won of treasury bonds this Friday in an emergency move.

The Bank of Korea also plans to purchase 3 trillion won in government bonds including three-, five- and ten-year debts on Thursday.

“We will make every effort to deal with the market through close cooperation between related authorities,” said Vice Finance Minister Bang Ki-sun. “We will also consider measures to ease anxiety in the stock and corporate bond markets.”

Earlier this week, some of the government bond yields also touched their highest levels in more than a decade as Bank of Korea Governor Rhee Chang-yong continued to indicate there would be another 50-basis-point interest rate hike next month.

On Monday, the most liquid three-year treasury bond yield ended the local trade at 4.548%, the highest since October 2009, while the five-year bond yield also hit 4.563%, the strongest since March 2010, according to the Korea Financial Investment Association.

In the currency market, the finance ministry and the central bank were suspected of dumping dollars to support the ailing Korean won.

Write to Dong-Hun Lee, Jin-gyu Kang and Hyeong-Gyo Seo at leedh@hankyung.com
Jongwoo Cheon edited this article.