Did the Corporate Bond Market See Effects from the Chaean Fund? "Issuance at Average Market Interest Rate Level Achieved"

Hyundai Motor and Dong-A Socio Holdings Demand Forecasts Hit This Week
Issued at Bank-Linked Corporate Bond Average Interest Rate, Maturity Period Expanded

[Asia Economy Reporter Minji Lee] There is a forecast that the corporate bond market, which had been stagnant due to the spread of the novel coronavirus infection (COVID-19) and tightening of the capital market, is gradually showing signs of recovery. This assessment is based on the improvement seen through the Bond Market Stabilization Fund (Cha-an Fund) and the Korea Development Bank bond purchase program.

According to related industries and Mirae Asset Daewoo on the 3rd, Hyundai Motor Company, which conducted a demand forecast this week, secured the entire planned issuance amount for 3-year, 5-year, and 7-year corporate bonds at levels close to the average market interest rate. Dong-A Socio Holdings recorded valid demand of 56 billion KRW, exceeding the planned issuance amount by 11 billion KRW, based on demand from the Korea Development Bank and retail investors. This contrasts with the period when corporate bonds were issued at higher-than-average market interest rates due to the impact of COVID-19.

Researcher Kyung-rok Lee of Mirae Asset Daewoo said, “Dong-A Socio Holdings raised more funds than the originally planned amount based on demand from the Korea Development Bank and retail investors,” adding, “It is noteworthy that an A-rated company gathered more demand than the initially planned amount.”

Recently, the corporate bond market is observed to be influenced by the government’s liquidity supply policies. Credit spreads for ultra-high-grade special bonds and bank bonds have stabilized downward, and spreads for card bonds are also showing stability. The short-term funding market is recovering, centered on high-grade commercial paper (CP), and bank-affiliated card bonds with excellent credit ratings are being issued not only at average market interest rates but also with maturity periods extended up to three years. Capital bonds are also seeing short-term demand mainly from bank-affiliated issuers.

Researcher Lee said, “Although it is regrettable that the final interest rates in corporate bond demand forecasts are higher than the average market rates, it is positive that the process of filling valid demand relative to the planned issuance amount has diversified through insurance, pension funds, banks, and retail demand.”

However, improvement in investor sentiment for low credit ratings should be approached cautiously. Although the 5th Emergency Economic Meeting announced measures to purchase non-investment grade corporate bonds and CPs, there is no sign of improved investor sentiment in low credit ratings. Researcher Lee predicted, “Close monitoring of low-rated corporate bonds, credit finance bonds, and asset-backed commercial paper (ABCP) with difficult credit enhancement structures is necessary, and additional support measures should be considered if needed.”

As bond market support policies continue to expand worldwide, led by the United States, long-term trickle-down effects are expected. Researcher Lee emphasized, “It would be good to use products with excellent credit ratings and increased interest rate attractiveness as buying opportunities,” adding, “Just as the liquidity spread of bank-affiliated card bonds has narrowed, bank-affiliated capital bonds and high-grade corporate bonds may also see spreads return to previous levels over time.”

This content was produced with the assistance of AI translation services.