Oct. 16 (Bloomberg) -- South Korea warned of risks of volatility in the won and stresses within the nation’s bond market as the U.S. grapples with the threat of a default that could roil the global economy.
Prolonged tension over U.S. fiscal policy adds to the danger of increased volatility in financial markets, the finance ministry said in a report prepared for a parliamentary audit today. Bond issuance by companies with low credit ratings may wither, the report said, amid a criminal probe and financial crisis at the Tong Yang Group.
South Korea will strengthen monitoring of financial markets and act quickly if necessary to curb volatility in its currency, the finance ministry said. Speaking in the city of Sejong, Finance Minister Hyun Oh Seok highlighted concern over the effect of Federal Reserve plans to reduce monetary stimulus when the U.S. economy strengthens sufficiently.
The won was little changed at 1,066.2 per dollar as of 1:36 p.m. in Seoul.
In the U.S., Senate leaders are reopening talks aimed at avoiding a default and ending a 15-day-old government shutdown, while Fitch Ratings has put the world’s biggest economy on watch for a possible credit downgrade.
The outlook for U.S. monetary policy is “causing volatility in financial markets, especially in the emerging economies,” Hyun said.
“We are concerned that bond issuance of low credit-rating companies may wither,” the finance ministry said in the report. “We’re concerned that marginal firms may have difficulties in their corporate financing.” The ministry said it will “closely inspect the corporate financing market and support refinancing of viable firms through creditor banks.”
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