Developing the Government Bond Market in South Korea: History, Challenges, and Implications for Asian Countries

Kenneth Kang, Geena Kim and Changyong Rhee
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Kenneth Kang: International Monetary Fund IMF Office Bank of Korea 110-0 Namdaemoon Ro 3 Ga, Jung Gu Seoul South Korea
Geena Kim: Department of Economics University of Pennsylvania 160 McNeil Building 3718 Locust Walk Philadelphia, PA 19104-6297 USA
Changyong Rhee: Korea Fixed Income Research Institute and Department of Economics Seoul National University Seoul South Korea

Asian Economic Papers, 2005, vol. 4, issue 2, pages 91-113

Abstract: The government-led development of South Korea's government bond market after the Asian financial crisis provides a case study for building local bond markets in Asia. Two steps considered particularly effective at enhancing the liquidity of the market were the reopening system and the mandatory electronic exchange trading system for benchmark issues. This study uses the micro bondtrading data of the Korea Stock Exchange to determine how these efforts enhanced the government bond market. It also analyzes a long-term challenge: with the fiscal deficit projected to return to balance, the supply of outstanding government bonds is likely to decline, reducing the overall supply of benchmark issues. Copyright (c) 2006 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

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