Bank of Korea Plans Government Bond Purchase to Stabilize Market

(Bloomberg) --

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The Bank of Korea said it will purchase 1.5 trillion won ($1.2 billion) in government bonds in order to stabilize markets amid the coronavirus crisis. Futures on the bonds rose after the announcement.

The BOK routinely buys government bonds, but the last time it bought them for the stated purpose of market stability was in 2016 when volatility increased following the unexpected election of U.S. President Donald Trump.

The bank will buy three-, five- and 10-year bonds in auctions, it said in a statement Thursday.

“The BOK is showing a willingness to provide liquidity to markets in a squeeze,” said economist Kim Jin-myoung at Hanwha Investment & Securities. “The volume is too small to be seen as a signal for quantitative easing, though, because that would require plans for an extended period of bond buying.”

The BOK announcement came the same day the government unveiled a 50 trillion won loan program to help small businesses hurt by the pandemic. Earlier in the week, parliament approved a 11.7 trillion won extra budget and the BOK slashed its key interest rate to a record low.

Governor Lee Ju-yeol told reporters Monday that the BOK could immediately purchase government bonds if the spread between government bond yields and the key interest rate widened, calling it a “card we always have.”

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