Corporate bond sales jump 62% this year on improved sentiment

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South Korea’s corporate bond market is showing signs of recovery on the back of improved investor sentiment, with bond sale by Korean Inc. surging 62 percent this year from a year ago.

According to Hyundai Motor Securities Co. on Friday, the amount of corporate bond issuance totaled 13.8 trillion won ($10.63 billion) this year as of Feb. 15, up 62 percent from 8.5 trillion won a year ago. The ratio of bid amount to issue amount popped to a record 7.5 times, higher than its previous record of 4.9 times in 2021, as demand for AA or higher-grade bonds increases.

The bidding amount for corporate bonds rated AA or higher reached 52.4 trillion won as of Feb. 9, as investors flocked to the bond market with trillions of won to buy bonds from blue chip companies such as KT Corp. (AAA), POSCO (AA+), and LG Chem Ltd. (AA+) during the period, according to NH Investment & Securities Co.

SK hynix Inc. (AA), which held a book building session on Feb. 7 for its new issuance, had planned to sell bonds worth 700 billion won, but it had to almost double the size to 2.58 trillion won after an overwhelming demand of 2.58 trillion won. More than 2 trillion won worth of bids were filed for CJ CheilJedang Corp. (AA) and 2.2 trillion won for GS Power Co. (AA).

Thanks to the popularity of AA-grade or higher corporate bonds, non-prime issuers, mostly from the securities and construction industry, joined the market to sell A or lower-grade bonds.

The yield on 3-year, 5-year, and 10-year treasury bonds rebounded this month, exceeding the base rate of 3.5 percent, as employment and inflation numbers were strong in the U.S., dampening expectations for cease-fire on rate hikes. Corporate bond yields, however, are still higher than the base rate, making them still attractive to investors.

According to the Korea Financial Investment Association (KOFIA), interest rates on 3-year, 5-year, and 10-year government bonds were all in the 3.6 percent range as of Feb. 17.

Experts say that the current bullish trend in the corporate bond market will continue overall, but sentiment is expected to be weaker than before.

Additional issuance of corporate bonds worth around 7 to 10 trillion won is expected to follow by the end of March, and given high demand, competition is very likely to continue for the time being. Demand for credit bonds, however, may gradually decline after the second quarter, said Han Kwang-yeol, an analyst at NH Investment & Securities Co.