(Bloomberg) — South Korea is redoubling efforts to shore up local credit market as yields surge to decade highs and default risks spread, extending efforts to support markets after the country already stepped in earlier this year to slow a tumbling won.
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Authorities will swiftly resume buying corporate debt via a 1.6 trillion won ($1.1 billion) bond stabilization fund established in 2020, and will prepare to increase its size, the Financial Services Commission said. Authorities will closely monitor market unease that’s spread due to concerns about project financing asset-backed securities related to Gangwon province, according to a statement on Thursday.
The announcement constitutes yet another instance of officials in the country taking action to calm markets this year and comes just a few weeks after a rare default by the developer of Legoland Korea theme park in that northeastern municipality. That missed payment chilled sentiment and, along with aggressive interest rate hikes by the Bank of Korea, contributed to a surge in borrowing costs.
Yields on Korean commercial paper have skyrocketed to a level last seen during the global financial crisis and sales of new won bonds have plunged 90% this month to just 205 billion won, the lowest-ever for the period, according to Bloomberg-compiled data going back to 1999.
The stress in Korea takes place against the backdrop of a global market selloff, as central banks raise interest rates to dampen inflation even at the expense of an economic downturn.
An index of Asian dollar bonds has lost 15% so far this year. Such gyrations mean wary investors are staying on the sidelines, while rising borrowing costs have left companies reluctant to sell new debt.
Spreads on won corporate notes jumped to the highest since at least 2010, Bloomberg-compiled data show.
Korea isn’t alone to arrest a market slide this year. With its currency plummeting, Taiwan bought securities on the Taiwan Stock Exchange worth more than NT$10 billion the end of September.
(Updates with detail, context throughout)
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