South Korea's financial regulator said on Thursday it plans to establish a 20-year government bond futures market by 2015 to boost derivatives trading activity and offer investors' more hedging options.
The Financial Services Commission (FSC), in an annual report to the president, said a greater variety of derivatives products will offer investors the ability to properly manage their investment risks.

This measure comes as the South Korean government seeks to increase the proportion of longer-term debt to reduce potential refinancing risks and meet demand from institutional investors for such products. A futures contract for longer-tenored debt would help investors cope with risks associated with the less liquid paper.

The FSC also said it will closely monitor a recent spike in yuan-denominated deposits and any similar trends involving other foreign currencies for potential risks.

Yuan deposits by South Korean residents jumped nearly nine-fold between September to January as investors searching for higher yields invested in short-term, asset-backed commercial paper that results in simulated yuan deposits in local branches of Chinese banks via currency swaps.

Bank of Korea Governor Kim Choong-soo said last week that the spike in yuan deposits was not a major cause for concern, and policymakers have so far ruled out any change in regulation to curb the yuan deposit growth.

Finally, the FSC said it plans to announce additional measures to manage household debt conditions by end-February. Though it did not disclose specifics, new measures will add to existing debt restructuring efforts such as boosting the amount of longer-term and amortising home mortgages to push borrowers towards more financially sound loans. (Reporting by Se Young Lee; Editing by Kim Coghill)