© Reuters. Uncertainty in the financial market… 20 trillion redemption fund restarts
The financial authorities have begun to review the resumption of the bond market stabilization fund (bond fund) in order to respond to the sudden cooling in the corporate bond and commercial paper (CP) markets. He is said to strongly consider the amount of 20 trillion won. Following the creation of a 10 trillion won securities market stabilization fund, the financial authorities are using all available market stabilization tools, including debt financing funds.
According to financial institutions on the 16th, the Financial Services Commission began an internal review to create a loan fund. As interest rates rise this year, corporate bond issuance is falling, raising concerns about corporate financing. Recently, as the real estate market contracted and the ‘Legoland Asset Backed Commercial Paper (ABCP)’, which Gangwon-do promised to guarantee his debt, fell into default (default), a situation where project finance (PF) is supported. securities market freezes quickly is also considered. .
An official from the financial authorities said, “The size of the bond fund will be discussed while watching the market conditions.”
The first bond fund was created in 2008 with a scale of 10 trillion won to expand the demand for buying corporate bonds during the global financial crisis. In order to respond to the COVID-19 crisis in 2020, the maximum target is 20 trillion won. The financial authorities first raised about 3 trillion won and the investment was implemented through the ‘capital call’ method, which provides money when needed, and now 1.6 trillion won remains.
It is expected that the remaining 1.6 trillion will be used to buy corporate bonds and CPs first when the loan fund is reopened, and banks and securities companies will also invest the insufficient funds through renegotiation. The 60 trillion won securitization securities market is almost paralyzed… Will the ‘Chain Fund’ breathe?
Financial market instability… A review of the re-operation of the bond market stabilization fund
It is analyzed that the reason why the financial authorities took the card to restart the bond market stabilization fund (bond fund) was because they judged that the financial crunch in the corporate bond and commercial paper (CP) market was that serious . The project financing guarantee (PF) securities market, such as ABCP, which had led the short-term fund market due to the lack of Legoland’s Asset-Backed Commercial Paper (ABCP), which Gangwon-do pledged as a debt guarantee, has almost come to an end . work. Corporate bond issuance has also fallen sharply following interest rate rises. It is worth noting whether the market, which has been contracted by the bond fund restart, will revive. Larger image CP interest rate surges due to ‘Gangwon-do shockwave’ According to the Financial Investment Association on the 16th, the 91-day CP rate, the highest in the credit rating (A1), rose 0.02 percentage points on the 14th to 3.78% a year. The interest rate rose by 3.13% per annum on the 21st of last month without missing a single day.
The surge in CP interest rates is the result of a surge in interest rates on PF-backed securities, which have been strengthened by securities companies, local governments, and construction companies due to the ‘Gangwon-do ABCP incident’. So far, PF-backed securities with excellent credit ratings have not had any major problems in digesting the volume in the market. However, since Gangwon-do failed to fulfill its obligation to guarantee the payment of guaranteed securities in a timely manner, distrust grew and it became difficult to find suitable investors even if interest rates rose. Gangwon-do has announced that it will fulfill its payment guarantee obligations as market unrest increases, but the confusion is compounded by the fact that it does not provide a specific timetable.
Securities companies that could not find investors put out the ’emergency fire’ by acquiring PF-backed securities with their own money. An official from a securities company said, “The interest rate on A1 grade PF backed securities, which was in the 4% range last month, has exceeded 7-8% per annum.
Securities companies have been increasing the issuance of PF-backed securities by providing credit reinforcement such as purchase agreements and purchase confirmations, taking advantage of the booming real estate market. According to the Nice Credit Score, the balance of PF-backed securities issued by securities companies for credit enhancement was 46.1 trillion won in the first half of this year, an increase of 11.9 trillion won from the first half of last year (34.11 trillion). win). If you include PF-backed securities (15.35 trillion won in the first half of this year), which construction companies have strengthened, the total remaining balance will be more than 60 trillion won. “Debt funds, insufficient to fundamentally resolve market volatility” There is great concern in the industry that the market for short-term funds, such as PF-backed securities, could spread to corporate bonds. Even short-term investors like ABCP with a maturity of 3 months are hard to find, so investor sentiment for corporate bonds with a maturity of one year or more is very likely to deteriorate.
The domestic corporate bond market has more or less gone into a state of ‘closed shop’ before the end of the year. According to the Financial Investment Association, corporate bonds were repaid in a net of 2.151.7 trillion won this month. This means that the maturity of the corporate bond exceeds the issue amount by that much. Construction companies, deeply concerned about the decline of the industry, are holding on to cash rebates. Recently, some high-quality conglomerates, such as Lotte, have been known to delay issuing corporate bonds due to deteriorating market conditions.
The outlook is mixed as to how much the reopening of bond funds will ease the squeeze in the corporate bond market. Yoon Yeo-sam, a researcher at Meritz Securities, said, “If the bond fund is reopened, it is expected to serve as a fan to ease investor sentiment that has cooled.”
There is an opinion that the government can show its will to stabilize the market, but it cannot be a fundamental solution. Kim Eun-ki, a researcher at Samsung Securities, said, “The corporate bond and CP market volatility is caused by lack of liquidity due to monetary policy tightening rather than credit risk. It is also noted that additional measures are urgently needed in the short-term money market, which focuses on PF-backed securities.
Correspondent Lee Dong-hoon/Jang Hyeon-joo leedh@hankyung.com
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