Korea's central bank to introduce 3-year monetary stabilization bond

[Source: Bank of Korea]

Korea’s central bank is adding longer-dated three-year maturity in its portfolio of monetary stabilization bond (MSB), instrumental for its open market operation, to raise responsiveness in liquidity adjustment.

The Bank of Korea’s Monetary Policy Committee on Tuesday approved the issue in three-year MSB. The central bank will scale back two-year papers as not to upset supply.

BOK has used the two-year bond as a means to absorb surplus liquidity, which is often created from current account surplus and foreign capital inflow, and thus to keep the local debt market stable.

Currently, the BOK’s MSB issues are highly concentrated on two-year ones. As of the end of May, two-year bonds accounted for 79 percent of outstanding MSBs, according to the bank.

The bank expects the addition of three-year MSB allow it respond more readily to changes in the market.

MSB yields fell despite overall rises in the longer-dated treasury bond yields. The two-year MSB yield was 1.196 percent, off 0.3 basis point. The 10-year government bond gained 3.6 basis points to 2.024 percent and 30-year one 5.1 basis points to 2.125 percent.

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