Korea’’s Development Experience :: KTB Market Korea s Development Experience KTB Market

November 2009

Republic of Korea
0

Content
Ⅰ. Overview of KTB Market Ⅱ. Factors of KTB Market Development
1. Well-organized & systemized primary market 2. Constant efforts for boosting liquidity 3. Fostering inter-dealer market 4. Expanding investors’ base 5. Communication with market participants
[Appendix 1] Recent trend of interest rates [Appendix 2] Recent history of KTB market
1

. Overview of KTB Market
The Core of the Korean Bond Market
KTB Outstanding
(trn Won) % of GDP
283.0

KTB Issue Volume
(trn Won)

300
24.4% 25.3% 239.3 206.8

30%

90 80

85.6

250

25% 70
60.7

200
15.8%

20%

60 50

56 52.1

150
8.1% 7.4% 3.9% 55.6 42.6

123.1

15% 40 10% 30 20 5% 10 0%
2009(e) 19.4 12.5 15.2

100

50
18.8

0
1998 2000 2002 2004 2006 2008

0
2009(e) 1998 2000 2002 2004 2006 2008

* 283.0 trillion won

around 210 billion US dollars (taking into account the average exchange rate in the first half of the 2009)

2

. Overview of KTB Market (Con’td)
Abundant Liquidity in Secondary market
KTB Trading Volume
(trn Won) (bp)
1500.0

Bid-Ask Spread of Gov’t Bond
25

1600 1400 1200 1000 800 600 400
213.5 361

20
1056.9 927.5 924

15

10

5

200
13.3

0
2009(e) 1998 2000 2002 2004 2006 2008

0
Philippines Hongkong Singapore Indonesia Korea Malaysia Thailand Japan

* Source : ADB, Asian Bonds Online, as of mid-2008

3

Ⅰ. Overview of KTB Market Ⅱ. Factors of KTB Market Development
1. Well-organized & systemized primary market 2. Constant efforts for boosting liquidity 3. Fostering KRX Trading System (KTS) for KTB 4. Expanding investors’ base 5. Communication with market participants
[Appendix 1] Recent trend of interest rates [Appendix 2] Recent history of KTB market
4

Ⅱ. Factors of KTB Market Growth
Basic Principles of Policy on KTB

Predictability & Transparency

KTB
Openness & Communication Efficiency

5

Ⅱ. Factors of KTB Market Growth (Con’td)
1. Well-organized & systemized primary market
Regular announcement of annual & monthly issuance plan
Annual plan (at the beginning of the year) Gross (and net) issue volume of the year / Composition by maturity Monthly plan (on the last Thursday of the previous month) Issuance schedule and amount by maturity Buyback schedule, types and amount
Monthly issue volume is determined considering the market condition, and KTBs are issued as evenly as possible throughout the year to ensure market stability

Regular auctions
3-yr KTB : Monday in 1st week / 5-yr KTB : Monday in 2nd week 10-yr KTB : Monday in 3rd week / 20-yr KTB : Monday in 4th week

Well-functioning Primary Dealership Program
KTB underwriting / Market making / Policy dialogue
6

Ⅱ. Factors of KTB Market Growth (Con’td)
2. Constant efforts for boosting liquidity
Simplification & Fungible issue
Simple KTB Product Line Fixed Rate : Only 4 types (3,5,10,20-yr) Inflation Linked Rate : 1 type (10-yr) Fungible Issue Frequency 3ㆍ5-yr KTB : 6 months / 10ㆍ20-yr KTB : 1-yr Inflation Linked 10-yr KTB : 2-yr

KTB Buyback & Introduction of Conversion Offer (from May, 2009)
Off-the-run KTBs of low liquidity exchanged for benchmark KTBs of high liquidity 3 conversion offers in 2009
* bid-to-cover ratio : 338%(May), 227%(Jul), 234%(Sept)
7

Ⅱ. Factors of KTB Market Growth (Con’td)
3. Fostering KRX Trading System for KTB
Improve transparency & credibility by fostering KRX market
At the beginning of the KTB market, its transparency & price credibility were at a low level due to a lack of information sharing & a shortage of infrastructure

Opening of Trading System for KTB in KRX (1999~) Improve trading convenience through the system whereby KTBs traded Raise transparency & credibility by offering real-time price information and concluding deals

8

Ⅱ. Factors of KTB Market Growth (Con’td)
4. Expanding investors’ base
Diversified Investor Base
Breakdown of KTB Holders
Investment Securities, 7.2%
25
7.4% 7.1%

Increase of Foreign Holdings
35 30
9.2% 9.9%

12%

Comp, ETC, 1.3% 4.8%

10%

Insurance, 15.5%

Bank, 43.4%
20 15 10
2.0%

8%
6.6% 6.5%

6%

4%
2.8%

Pension Fund, 29.0%
As of Dec 2008

5 0
4Q06 2Q07 4Q07 2Q08 4Q08 1Q09 2Q09 3Q09

2%

0%
9

Ⅱ. Factors of KTB Market Growth (Con’td)
5. Communication with market participants
Primary Dealer (PD)
- 12 Securities firms - 7 Banks (As of Oct. 2009)

Major investors

Korean Government

- Major pension funds - Insurance firms - International banks

Overseas IR
-’08.11 Singapore -’09.6 Singapore, Japan & US -’09.9 Hong Kong
10

Appendix 1] Recent trend of interest rates
No considerable increase in interest rates due to abundant liquidity in the market
9
(%)

3yr KTB

5yr KTB

3yr coporate(AA-)

Base rate

8 7 6 5 4 3 2 1 02-Jan-07 02-May-07 02-Sep-07 02-Jan-08 02-May-08 02-Sep-08 02-Jan-09 02-May-09 02-Sep-09
11

[Appendix 1] Recent trend of interest rates (Cont’d)
Yield Curve Steepened
7%

6%

Sep.30.2008 Dec.31.2007 Aug.31.2009

5%

4% 3-yr 5-yr 10-yr 20-yr
12

Appendix 2] Recent History of KTB market
Mar. 1999 Jul. 1999 May. 2000 Oct. 2000 Jan. 2006 Sept. 2006 Mar. 2007 May. 2009 Sept. 2009 Opening of KRX Trading System for KTB Implementation of Primary Dealer System Introduction of Fungible Issue System Issuance of 10-year KTB Issuance of 20-year KTB Granting Superior PDS non-competitive bidding option Issuance of Inflation-linked KTB Adoption of Conversion Offer Change of KTB Auction Method (Dutch Multi-price)
13

Thank You

14

Sign up to vote on this title
UsefulNot useful