Risk Premium for Foreign Exchange Bonds on Decline

The shaking financial market caused by SK Global’s accounting impropriety has become stabilized. After international credit rating company, Moody’s announced that it would maintain Korea’s sovereign rating, the global financial market saw risk premiums on foreign exchange bonds decline.

Requests for selling SK stocks are also decreasing. However, risk factors concerning corporate bonds issued by card companies play a role as an obstacle to stabilization. The risk premium on Korea’s foreign exchange stabilization bonds skyrocketed to 1.97 basis points in Hong Kong Wednesday, but dropped to 1.88 basis points on Thursday. The premium went down another 0.05 to 0.1 basis points today.

With the decision by the Bank of Korea (BOK) to repay treasury bonds from investment trust firms, the yield on the three-year treasury bonds declined 0.16 percentage points to 5.08 and the corporate bond yield went down 0.13 percentage points to 5.76.

The won-dollar exchange rate also dropped today by 4.4 won to 1241.20 won. As the US stock market rallied, the Korea Composite Stock Price Index (KOSPI) rose 5.87 points or 1.1 percent to close at 537.65 and the Kosdaq Index inched up 0.94 points or 2.61 percent to close at 37.01.

The Financial Supervisory Service announced that a total of 10.675 trillion won was pulled out from investment trust firms for three days, 1.685 won on March 11, 4.972 trillion won on March 12 and 4 trillion won on March 13.

1.2 trillion won was pulled out on March 14, however, requests for selling card company bonds and CPs are increasing. This is because the BOK decided not to repay the bonds despite increasing concerns over card issuers based on mounting overdue loan rates.

FSS manager Shin Hae-yong said, “Selling requests in investment trust firms are on the decline due to BOK’s intervention in the market and requests for institutional investors to show restraint.”

Dong-Won Kim Do-Young Kim daviskim@donga.com nirvana1@donga.com