"This Year’s Maturing Korean Foreign Currency Bonds Total $28.5 Billion... Largest Since 2017"

International Finance Center '2021 Outlook for Korean Foreign Currency Bond Market'

[Asia Economy Reporter Kim Eun-byeol] The volume of Korean foreign currency bonds maturing this year is expected to reach $28.5 billion (approximately 31 trillion KRW), marking the largest scale since 2017 ($30.4 billion). In particular, if the US-China conflict expands into the financial and technology sectors, additional burdens (spread rates) on domestic companies and financial institutions are expected to increase.

According to the International Financial Center on the 2nd, the volume of foreign currency bonds maturing this year is expected to increase by about $4 billion from last year’s $24.5 billion to $28.5 billion. The volume of foreign currency bond maturities had decreased from $30.4 billion in 2017 to $23.7 billion in 2018 and $22.0 billion in 2019 but has been rising again since last year.

The amount maturing in January alone is relatively large at $3.4 billion. The maturities are concentrated in the first half of the year, with $3.9 billion in April and $2.6 billion in June. The volume maturing in the second half of the year is also expected to average about $2.3 billion per month.

The International Financial Center stated, "Since benchmark interest rates are expected to gradually rise next year, active refinancing issuance is anticipated from the beginning of the year."

By currency, the proportion of dollar-denominated maturities is 75.3%, similar to this year, but due to the narrowing of the basis against the US dollar, the issuance of other currencies including the euro is expected to increase compared to this year, according to the International Financial Center. Besides the US dollar, the proportions of yuan (5.2%), yen (4.7%), and euro (3.9%) were significant.

By issuer, policy banks have the largest debt to repay at 50.2%. This is followed by public enterprises at 17.5%, general banks at 15.6%, general corporations at 12.0%, financial institutions at 3.0%, and the government at 1.7%.

Domestic companies and financial institutions are expected to face increased funding costs this year. The benchmark US Treasury yields are expected to rise as the US fiscal deficit expands, increasing the net issuance of Treasury bonds (approximately $2.8 trillion), and as stock market volatility decreases, Treasury yields are likely to increase.

Global investment banks (IBs) predict that US Treasury yields will rise by about 30 basis points (1bp = 0.01 percentage points) by the end of next year. The spread rates are expected to narrow by about 10-15%.

Meanwhile, the International Financial Center forecasts that while issuance market conditions this year will generally be favorable due to increased global liquidity, factors such as the US-China conflict, the possibility of China tightening monetary policy, and the pace of US Treasury yield increases will act as burdens. In particular, for Chinese companies, if China reduces its monetary easing policy amid a relatively rapid economic recovery, defaults among companies may increase.

Furthermore, it added, "Although Korean bonds may initially stand out as relatively safe assets as the US-China conflict expands into financial and technology sectors, if the situation worsens, the narrowing trend of spread rates on Korean bonds may be limited."

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