Korean securities firms cut yields on short-term notes as market improves

[Photo by Lee Seung-hwan]

As the capital market crunch eases, large securities firms in South Korea have lowered the yield on short-term discount notes, kicking almost all instruments with more than 5 percent out of the market.

Such notes are short-term financial instruments issued with maturity of less than one year by large securities companies with equity capital of over 4 trillion won based on their own credit profiles.

According to sources on Monday, Mirae Asset Securities Co. lowered the interest rate on its short-term discount notes by 0.1 to 0.35 percentage point from Jan. 5. As a result, the company’s one-year note yield fell to 4.90 percent from 5.25 percent. Other instruments with shorter maturities were also revised down. Mirae Asset Securities also cut the interest rate on short-term note-type cash management accounts (CMAs) and short-term notes with maturity on demand or 31 to 60 days to 3.80 percent from 3.90 percent.

Korea Investment & Securities Co. followed suit by lowering its interest rate on short-term discount notes by 0.2 to 0.25 percentage point on Jan. 2.

For contract products with a maturity of 181 to 270 days, the interest rate was down to 5.10 percent from 5.30 percent and for products with longer-term maturity, it was down by 0.25 percentage points to the low-5 percent range from the mid-5 percent range.

At the end of last year, NH Investment & Securities Co. lowered the interest rate by 0.5 to 0.6 percentage point for its discount notes with a maturity of more than six months, issuing most of new notes with yields in the high 3-4 percent range. KB Securities Co. also has an interest rate in the 3 to 4 percent range on contract notes with terms of 1 to 9 months, excluding 1-year notes whose yields stands at 5.05 percent.

Among large securities firms, only four have received approval for such issuance: Mirae Asset Securities, Korea Investment & Securities, NH Investment & Securities and KB Securities. They can issue short-term notes within the limit of 200 percent of equity capital.

Until early October of last year, interest rate on short-term notes issued by securities companies hovered at mostly 4 percent levels, but rose to the 5 percent range in about a month as the cash market crunch worsened after a default by a project financing contractor for Legoland Korea.