This study determines the current conditions of, and problems within, Korea’s bond market. Furthermore, it describes development plans for the bond market by organizing the national economic significance of bond market development, and by referencing the experiences of economically advanced countries.
All bonds issued in Korea can be categorized into five types: government bonds, local government bonds, special bonds, bank debentures, and corporate bonds by the issuing agent. Of these, government and public bonds backed by the government are free from the risk of default, and return a high yield, so the government and public bond market is the cornerstone of the greater bond market.
The fact that bonds are not issued or circulated by normal market principles is the main problem of the Korean bond market. Institutions who take over bonds with bond coupon yields lower than the circulation market yield (due to a bond coupon rate lower than the open market rate) tend to hold until maturity. This hinders the development of the circulation market, because trading volume of bonds remains low. Also, when institutions dump bonds on the market right after taking over due to financial pressure, bond price cannot be formed smoothly. Another problem is that the period for maturity is usually less than one year. This causes a conversion issue and hinders the development—and the expectation effect—of the bond market due to the suboptimal interest rate maturity structure. Also, the comprehensive management system of bond issue is inadequate. The lack of expertise hinders the operation of the bond market.
The development of the bond market makes stabilizes economic fluctuation and promotes financial liberalization. Also, operation conditions for the indirect control of currency can be improved by cultivating the long- and short-term development of the financial market. Also, financial saving can be enhanced by providing various mechanisms for investment. Moreover, necessary funds can be raised. This not only helps direct financing, but also makes indirect financing more effective. Also, a higher degree of Korean financial development can maximize profits from market opening, owing to the relaxation of restriction conditions related to market opening.
In order for the bond market to develop, government and public bond markets should be cultivated. First, government and public bond coupon rates should be liberalized. Also, since Korean financial saving is relatively low, methods of increasing financial saving should be determined. Furthermore, for the advancement of the bond circulation market, public announcement level for the related information such as basic yield for bond trade should be enhanced. Once an information delivery system is established, the bond investment base will expand. Moreover, the improvement of management systems such as the book-entry system will improve securities liquidity. Finally, the bond maturity structure should be made a mid- or long-term goal. Since long-term stable capital is advantageous to the issuing agent, the government should take the lead in issuing government bonds with long-term maturity.
금융발전과 채권시장의 활성화(Financial development and vitalization of bond market)
|Series Title; No||정책연구시리즈 / 93-13|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||KDI; KDI School|