KEPCO, other public offerings sell below market rate, govt debt yield inverted

Deficit-stricken Korea Electric Power Corp. (KEPCO) has issued two- to three-year bond below the market yields for the first time in nearly 18 months to suggest easing in the glut in the debt market through state-led multibillion-dollar relief program.

KEPCO on Monday sold two-year bonds worth 330 billion won ($246.6 million) at a coupon rate of 5.34 percent, 5 basis points below the market average of 5.39 percent. It also sold three-year papers worth 160 billion won at 5.35 percent, 4.8 basis points below the 5.398 percent market average. Bids were overwhelming respectively at 1.15 trillion won and 580 billion won.

“It must be more than one and a half year since KEPCO papers were issued at below the market rate,” said an unnamed official from a securities firm.

The outstanding three-year bonds yielded an average 5.4 percent Monday.

On Nov. 23, KEPCO had sold two-year bonds worth 370 billion won at a coupon of 5.6 percent and three-year papers worth 90 billion won at 5.65 percent. Bids stopped at 810 billion won and 330 billion won each.

Other public bonds sharing the top-tier investment grade also were sold below the market rate.

Korea Asset Management Corporation (KAMCO) sold two-year maturity papers at 3 basis points lower than the market average rate of 4.978 percent. The papers were issued at 4.898 percent on Monday based on the previous session’s closing rate.

The government has vowed minimum 50 trillion won bond relief package amid widening liquidity woes. State lenders and institutional investors will refuel bond stabilization fund by another 5 trillion won next month on top of 3 trillion won this month. The Bank of Korea will extend another 2 trillion won in repurchase agreements to back liquidity of institutional investors after earlier 6 trillion won.

The additional move came as the yields on short-term papers continue to soar amid concerns for insolvency in project financing debt worth 20 trillion won due next month. The 91-day CP yield hovers at 13-year high of 5.5 percent. The unsecured AA- three-year corporate bond yielded at 5.388 percent on Monday.

The government bond yield curve meanwhile has been inverting, with the shorter-duration bonds exceeding the longer-dated ones. An inversion in debt yield curve takes place usually when the market prices in a recession on the horizon.

The two-year government bond yielded at 3.776 percent, above the three-year yield of 3.666 percent. The three-year bond yielded at 3.648 percent, above 10-year yield of 3.619 percent. The three-year bond yield has been above the 10-year yield since September for the first time since July 2009.