Exchange Equalization Fund Bond Spread Suddenly Rises

The spread of the exchange equalization fund bond (EEFB), which is issued for the stabilization of the exchange market, recently skyrocketed. This seems to be a reaction to the current low spread. As of July 6, the EEFB spread marked 1.65 percent, which is 0.25 percent higher than 1.4 percent on July 3. The EEFB spread marked 2.04 percent at the end of last year. As it was prospected that the national economy would recover quickly, the EEFB spread dropped to 1.29 percent. Since then, it has showed a little change within a narrow range.

The financial circles analyzed that the sudden rise of the EEFB spread in a short term was not due to the new prospect that the national economy would be unstable or stagnate, but due to the low spread which has continued for a while. U.S. national bonds, which function as criteria for the spread, and the `swap spread`, which indicates the difference between the AA level U.S. bonds, have been extended following the forecast that the recovery of the U.S. economy will be delayed. During the same period, the national bonds of Asian countries, such as Malaysia and China, also rose within the similar range. A financial official said, ``When the rank of the national credit is BBB, like South Korea, the EEFB spread is about 2 percent. Since the existing spread is excessively low, it is under the short-term control. The spread may rise, but the range will not be wide.``

Lee Heon-Jin mungchii@donga.com