South Korea’s Financial Services Commission (FSC) has launched preparatory work to re-mobilize the so-called bond market stabilization fund to cope with the sharp rise in market yields following the victory of Donald Trump in the United States presidential election last month.

At a government-led meeting on Wednesday to discuss measures to counter rising yields, FSC Vice Chairman Jeong Eun-bo said that the government has embarked on preparatory operation to execute the bond market stabilization fund and that it will be re-mobilized whenever necessary. The financial regulator had made a similar move in 2008 following the global financial crisis to stabilize the local market by purchasing bonds with participation from institutional investors. Jeong called on financial institutions to play a leading role in mobilizing the fund with a sense of responsibility and duty.

The FSC has selected IBK Asset Management Co. as the main administrator of the fund, which will be managed in the form of fund of funds - an indirect strategy that involves diversified investment of several underlying funds. The government is currently in agreement with 90 financial institutions that allow the fund to be managed up to 10 trillion won ($8.6 billion) in the form of a capital call where it can demand investors to support the fund whenever necessary. The FSC plans to extend the maximum credit line of the fund to beyond 10 trillion won depending on changing market conditions.

At the meeting, Jeong also expressed concern over excessive shrinking of the bond market due to a sharp rise in market yields. He said that financial institutions should be able to control various effects of market volatility and refrain from significantly reducing their bond holdings by dumping them.

Kim Dong-won, a research at SK Securities Co. said that the FSC’s re-execution of the bond market stabilization fund will definitely help stabilize swaying investment sentiment that has been rampant in the bond market recently, but the move seems a bit early when comparing to 2008.

By Bae Mi-jung and Park Yoon-goo

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