Aftermath of Legoland Shakes Bond Market with 'Trading Freeze'... 100 Trillion Won Plunge This Month

[Asia Economy Reporter Ji Yeon-jin] Due to the default situation of Legoland in Gangwon Province, bond investment sentiment has weakened, resulting in a decrease of about 100 trillion won in bond trading volume this month.

According to the Korea Financial Investment Association on the 31st, the on- and off-exchange bond trading amount recorded 335 trillion won from the beginning of this month until the 28th. This is nearly 100 trillion won less than the previous month (431 trillion won), and compared to the same period last year (455 trillion won), it has sharply decreased by more than 100 trillion won. The bond trading volume falling below 350 trillion won is the first time since January 2009, when the global financial crisis triggered by the bankruptcy of the U.S. investment bank Lehman Brothers occurred.

The bond market saw liquidity loosen during the COVID-19 pandemic, with monthly trading close to 70 trillion won in 2020, dropping below 50 trillion won last year, and steadily trading around 45 trillion won this year as the perception spread that bond prices had bottomed out. In particular, on-exchange trading showed active investment, exceeding 100 trillion won in April and May of this year.

However, on the 28th of last month, Gangwon Province Governor Kim Jin-tae declared that he would not repay the debt of the Legoland theme park development company, causing the bond market to freeze rapidly and trading volume to plummet to financial crisis levels. The short-term money market tightening, which began when a default was declared a day before the maturity of the 205 billion won scale project financing (PF) asset-backed commercial paper (ABCP) issued by Gangwon Province for Legoland development, spread to overall bond market instability.

On the 23rd, the government and the Bank of Korea announced an emergency market stabilization plan exceeding 50 trillion won, which somewhat stabilized major bond yields, but due to continued high volatility in the bond market, trading sharply declined. Gong Dong-rak, a researcher at Daishin Securities, stated, "Due to the instability in the bond market caused by the Legoland incident, investors find it difficult to engage in trading easily." Baek Yoon-min, a researcher at Kyobo Securities, said, "From an investment strategy perspective, it is necessary to maintain a cautious stance as volatility may still expand further. Although a series of government measures and expectations of a slowdown in global monetary tightening have somewhat improved the severely contracted investment sentiment, it is still too early to have strong confidence in a market direction reversal."

This content was produced with the assistance of AI translation services.