Stabilizing Domestic Bond Market
Stabilizing Domestic Bond Market
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  • 승인 2007.04.18 17:45
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Ever since the foreign exchange crisis, the size of the bond market of East Asia has expanded. As of the end of 2005, the size of the bond market, based on one's own country's indication, was US$1.7 trillion, which is a 4.3 times increase compared to US$405.3 billion in 1997. From 1997 until 2005, East Asia's bond market showed an average increase per year of 16.6%. The ratio of the GDP to the size of the bond market of all the countries in East Asia was 17.3% at the end of 1997. At the end of 2005, it was 48.0%, which is a 2.8 times expansion.

However, despite the quantitative size expansion of the bond market of East Asia, the liquidity of the market is stagnant. As of 2004, the transaction turnover rate, which equals the annual transaction size or bond balance, one of the indices of liquidity, remained at less than four times for most of the East Asian countries. The one exception was Hong Kong at 34.7 times. It has been showing a low level compared to 31.6 times in the United States and 5.4 times in Japan.

From before the foreign exchange crisis, thoughts on the development of the bond market of East Asia have been presented by some people. And, through diverse local forums, discussions on the cultivation of the bond market of East Asia have vigorously unfolded.

In August 2003, the Asia Bond Market Initiative (ABMI), which included the need for the development of the bond market of East Asia, was adopted. As a more concrete execution plan, in June 2003, the Asian Bond Fund (ABF) of US$1 billion was formed.

Thereby, a foundation for the invigoration of the bond market within the area of East Asia was prepared.

For the advancement of the bond market of East Asia in the future, first, the formation of the given conditions for the development of not only the government bond market but also the corporate bond market is needed. In order to expand the size of the issuance of corporate bonds by corporations within the area, improvements -- such as the amelioration of corporate governance systems, improvement in making information open to the public and putting corporate bankruptcy bills in good order -- must be made. It is expected that the securing of the reliability of corporate bankruptcy bills will be able to promote the investment mentality of investors and, at the same time, improve the liquidity of the market.

Also, for the development of the corporate bond market, the role of the bank, the center of the financial market, is important. Solving the fund mediation function of banks, which has shrunk ever since the foreign exchange crisis, through the expansion of the demand for corporate bonds will be able to function with positive effects regarding the recovery of the financial mediation function and the growth of the bond market.

Also, it can be said that the establishment of a credit guarantee organization is the key to the invigoration of the bond market of East Asia. One of the biggest impediment elements for the development of the bond market of East Asia is the phenomenon of the discord of risks. This takes place because investors want to invest in bonds that have high credit ratings while, in contrast, the credit ratings of the bonds supplied within the area of East Asia are low. As a result, it is anticipated that the establishment of a credit guarantee organization for solving this will have the effects of developing the bond market within the area and lowering the costs of the issuance of bonds.

Above anything else, it is necessary to connect the development of the bond market of East Asia with the expansion of the business opportunities for domestic corporations and financial organizations. It is expected that if the advancement of the bond market within the area goes in full scale, the Korean companies that have entered into the East Asian region will be able to secure stable sources of fund raising with costs that are cheaper than those of bank loans and cash. For this, it is necessary for policy-making authorities to seek to make fund-raising smooth by providing the information regarding the issuance of bonds by the countries within the area to Korean enterprises that have entered into the East Asian region at the right time. And, in the case of Korean financial institutions, they must make plans for reconstructing their strategic schemes for entering East Asia. For example, in the case of a securities company, it must prepare a plan for expanding the business basis in the form of an investment bank with the invigoration of the bond market of East Asia as the opportunity.


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