[Market Now] Will Franklin Templeton exit monetary stabilization bonds?

To hold or not to hold Korea’s monetary stabilization bonds? -- this will be the question the local capital market will be asking foreign asset manager Franklin Templeton Investments this week.

Korea’s MSBs worth 1 trillion won ($860 million) held by Franklin Templeton will mature on April 2, and it remains to be seen whether the asset manager will roll over, or redeem and exit its investment. The Bank of Korea issues MSBs to control market liquidity as part of its open market operations.

Citing public data indicating that the 1 trillion won MSBs are likely to be held by Franklin Templeton, Seo Hyang-mi, a fixed-income market analyst at HI Investment & Securities, said should it exit, it would not have a major impact on the market where state bonds worth 97 trillion won are held by foreign investors.

“Should the asset manager exit rather than roll over its investment, we can just interpret it as the fund leaving the market, rather than expecting to see a significant effect on the market,” said Seo.

“Funds, after all, flow along with that of global liquidity.”

The local market for Korean treasury bonds and MSBs has relatively been stable, compared with emerging market bonds, attracting foreign financial institutions such as central banks, including the People’s Bank of China.

China became the country’s biggest bond investor with holdings of 17.5 trillion won as of February this year, according to the Financial Supervisory Service.

“About 50 percent of foreign capital investing in Korean state bonds come from overseas central banks, which seek stable returns on their investments with their foreign exchange reserves,” Seo said.

Should foreign financial institutions holding Korean treasury bonds with a maturity period ending in June roll over their investments to other KTBs, this will further indicate that Korea’s bond market is stable, she said in her analysis report.

By Park Hyong-ki (hkp@heraldcorp.com)