Introduction of 3-Year Treasury Stabilization Bonds: "Expansion of Liquidity Management Tools"

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The Bank of Korea has decided to newly introduce a 3-year Monetary Stabilization Bond (MSB) to enhance the efficiency of liquidity control.

On the 22nd, the Bank of Korea announced at the Monetary Policy Committee that it will issue 3-year MSBs through the revision of Article 14 of the Open Market Operation Regulations.

The Bank of Korea stated, "To prevent the 3-year MSBs from becoming a factor that increases volatility in the bond market, we plan to significantly reduce the issuance scale of the existing 2-year bonds and improve the monthly regular issuance operation method of MSBs."

Currently, South Korea is in a structural state of 'excess liquidity' due to current account surpluses and foreign capital inflows. Under the current interest rate-centered monetary policy system, stable absorption of this excess liquidity is essential. Therefore, the Bank of Korea has mainly utilized 2-year MSBs to control excess liquidity until now.

A Bank of Korea official explained, "As of the end of last month, 79% of the outstanding MSB issuance was 2-year bonds, showing a heavy concentration on 2-year bonds. By newly introducing 3-year bonds, we have diversified the issuance maturities and expanded liquidity control tools to create conditions that can respond more flexibly to changes in market conditions."