PF ABCP Purchase Also Pushes CP Interest Rate to Record High

CP Interest Rates Continue at Record Highs
Corporate Bond Credit Spreads Also Widen

[Asia Economy Reporter Junho Hwang] Although the government launched a 1.8 trillion KRW PF (Project Financing) ABCP (Asset-Backed Commercial Paper) purchase program for small and medium-sized securities firms, it appears that it failed to send any significant signals to the bond market.

According to the Korea Financial Investment Association on the 21st, the 91-day maturity commercial paper (CP) rate recorded a year-high again at 5.36%. This is a 0.03 percentage point increase from 5.33% on the previous trading day, the 18th.

Investor sentiment toward corporate bonds also showed further deterioration. The credit spread, which is the difference between the 3-year government bond and the 3-year AA- rated corporate bond, widened to 1.654 percentage points. The wider the gap, the higher the market perceives the risk of investing in corporate bonds.

Although the government stepped in to purchase PF ABCP from small and medium-sized securities firms on this day, the market response seemed muted. The Financial Services Commission launched the 'Second Cha-An Fund.' Nine major securities firms pooled 450 billion KRW (25% mezzanine), the Korea Development Bank and Korea Securities Finance Corporation each added 450 billion KRW (25% senior tranche), and securities firms applying to purchase PF ABCP prepared 450 billion KRW (25% junior tranche), creating a total of 1.8 trillion KRW to be injected into the market.

Experts believe that even with the inflow of funds, it is difficult for the market direction to change suddenly. They forecast that market changes will occur only when the overall conditions to alleviate the liquidity crunch risk are established.

Dongrak Gong, a researcher at Daishin Securities, explained, "It is difficult for the liquidity crunch to ease suddenly just because a certain amount of funds are injected. Considering that supply and demand for funds usually meet, it is reasonable to think that unless a large amount of funds is rapidly injected, the direction of the liquidity crunch will not change in a short period."

Myeongsil Kim, a researcher at Hi Investment & Securities, also analyzed, "It seems somewhat risky to expect that the already spread credit risk will be resolved in the short term. We should note that liquidity crunch in the short-term money market may continue until early next year when funds flow smoothly into the market amid the Bank of Korea’s monetary policy pace adjustment."

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