Kim Yong-beom Vice Minister: "Hope for Bold US Measures to Calm National Bond Market Turmoil"

"US Treasury Prices Plunge, Symbolizing COVID-19 Market Turmoil"

Kim Yong-beom, 1st Vice Minister of Strategy and Finance (Photo by Yonhap News)

[Asia Economy Reporter Kwangho Lee] Kim Yong-beom, the 1st Vice Minister of the Ministry of Economy and Finance, stated on the 23rd, "I eagerly await extraordinary measures from the U.S. Federal Reserve and Treasury to calm the turmoil in the U.S. Treasury market."

On the same day, Vice Minister Kim wrote on Facebook under the title "The Shaking Rock," saying, "If the belief that Treasury bonds are as solid as a rock is shaken, the international financial market falls into chaos."

This comment came in response to the recent surge in U.S. Treasury yields (price drops) amid the spread of the novel coronavirus disease (COVID-19), which is considered a safe asset. In other words, he viewed the rise in Treasury yields during financial instability as an unusual phenomenon, highlighting the need for vigilance and countermeasures.

Vice Minister Kim cited an article from the British financial newspaper Financial Times, pointing out the instability in the U.S. Treasury market and expressing concern about this instability spreading to the international financial market.

He explained, "The hardest rock in the international financial market is the U.S. Treasury. So when the market becomes unstable, investors rush to buy U.S. Treasuries, causing Treasury yields to fall (prices to rise). This is a preference for safe assets and is basic investment common sense."

He continued, "However, the market instability caused by COVID-19 led to massive bond fund redemption demands, prompting asset management companies to hurriedly sell Treasuries, resulting in an unusual phenomenon of a sharp rise in U.S. Treasury yields. The price volatility soared to an absurd level, not just slightly."

Vice Minister Kim expressed frustration, saying, "This will be remembered for decades as an event symbolizing the market instability caused by COVID-19. It is truly hard to imagine Treasury yields fluctuating so wildly."

The article he cited included comments such as, "Having worked in Wall Street investment for 40 years, I have never seen a market like this," and "Such an event statistically happens once every thousand years."

Vice Minister Kim also pointed out these issues during an emergency macroeconomic and financial meeting on the same day. He said, "Despite the Fed's large-scale bond purchases and other active market stabilization measures, bond spreads are widening, intensifying the global liquidity competition. Market instability continues, especially in emerging countries with large external debt and commodity-exporting countries, showing currency depreciation and massive capital outflows."

He added, "Since the domestic financial market has been sensitive to global financial market trends, we must remain vigilant and respond accordingly. We need to strengthen monitoring of the money market and promptly implement measures to stabilize the market if short-term interest rate volatility becomes excessive, ensuring thorough prevention of credit crunch."

In response, the government plans to newly establish a 'Macro-Financial Stability Team' within the Ministry of Economy and Finance to swiftly inspect systemic risks in domestic and international markets and financial sectors, and to preside over daily market inspection meetings.