Fears about April liquidity crisis in Korea subside after govt bond purchase program

2020.03.25 14:12:47 | 2020.03.25 14:13:27

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The fear about a liquidity crisis in April when monthly record 6.5 trillion won in corporate bonds mature has eased after the government pledged to inject 30.8 trillion won ($25 billion) in bond-purchase program to help companies fight liquidity shortage amid escalating economic toll from virus outbreak.

As much as 45 trillion won in short-term papers and 17 trillion won in long-term corporate bonds out of 31 trillion won due by the end of this year mature by June.

“Since about 3 trillion won demand would be there in the market for top-rated AAA papers, the 30.8 trillion won fund could be enough to cover the corporate debt obligations for this year,” said Eun Sung-soo, chairman of the Financial Services Commission. The FSC estimates 778 trillion won in outstanding debt by Korean Inc.

Liquidity in the bond market has been significantly squeezed as local brokerages issued commercial papers in large scale to meet a surge in margin calls amid stock market crashes around the world. Yields on commercial papers with a maturity of 91 days jumped to 1.55 percent on Monday due to the liquidity problems from 1.36 percent on March 17.

According to the Korea Securities Depository, there were 7.4 trillion won worth commercial papers with duration of less than 10 days as of Monday. The figure rose to 30.4 trillion won when including asset-backed commercial papers and short-term bonds with a maturity of less than 10 days.

The three-year government bond yield fell 1.9 basis points from the previous session to 1.108 percent on Wednesday morning, and the 10-year note down 3.1 basis points to 1.677 percent.

The government’s aid package gave a much-needed relief to the bond market, but companies, especially the ones with poor creditworthiness, should remain vigilant against potential economic and financial shocks in the global market from the virus outbreak, according to experts.

By Kim Gang-rae, Ahn Gab-seong, Kang Woo-seok and Choi Mira

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