Riding out Swings in Foreign Investment

South Korea prepares a contingency plan for the domestic bond market in anticipation of policy changes in the U.S. and Japan.

South Korea is “closely analyzing” volatility in foreign purchases of government bond futures and preparing a contingency plan should overseas investors yank money from the market, a senior Finance Ministry official said.

The swings may increase as Japan ramps up monetary easing and speculation grows that the U.S. Federal Reserve will roll back stimulus, Gwak Bum Gook, director general at the treasury bureau, said in an interview in Sejong yesterday. The contingency plan will include stronger cooperation with the Bank of Korea, financial regulators, and the stock exchange, Gwak said. He didn’t provide more details.

‘Biggest Concern’

The price of Korean government debt has fallen as investors speculate that a strengthening U.S. economy may prompt the Fed to reduce quantitative easing. In the U.S., Federal Reserve Bank of Dallas President Richard Fisher said yesterday that he sees the end of a 30-year bond-market rally, while calling for a reduction in the Fed’s $85 billion in monthly bond purchases.

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