There Was a Reason for the Success of 'BBB'-Rated Corporate Bonds

January Demand Forecast Scale 540 Billion
Expected to Double Compared to Previous Years

Institutions Abundant Funds 'New Year Effect'
Increase in BBB-rated Corporate Bond Issuance
Interest Rate Attractiveness Considered Sufficient

High-Yield Fund Special
High-Yield Fund Demand Rises Ahead of IPO
Increased Investment Targeting Priority Allocation of Public Offering Shares

[Asia Economy Reporter Minji Lee] BBB-rated low-credit (high-yield) corporate bonds are experiencing a boom. As the New Year effect emerges, institutional investors are increasing demand to hold high-yield bonds in funds to receive large IPOs such as LG Energy Solution (LG EnSol) and Hyundai Oilbank.

According to the financial investment industry on the 12th, Hyundai Rotem (BBB+), which opened the first corporate bond demand forecast of the year, received a total of 246 billion KRW, with 152 billion KRW for the 2-year 80 billion KRW and 94 billion KRW for the 3-year 20 billion KRW bonds, exceeding the issuance amount of 100 billion KRW. Hyundai Rotem, which secured twice as much funding as expected from institutions, is expected to proceed with an increased issuance of up to 200 billion KRW. On the same day, Hanjin (BBB+) is expected to conduct a demand forecast for corporate bonds worth 70 billion KRW, followed by Doosan (BBB) and Korean Air (BBB+) entering the corporate bond market.

Typically, at the beginning of the year, institutional liquidity increases significantly, improving investment sentiment toward low-credit companies. This is called the "New Year effect," and low-credit rated companies increase corporate bond issuance significantly in January and February to take advantage of this. This year, as more companies seek to secure cash at low borrowing costs before interest rate hikes, issuance demand is expected to be much higher than in previous years. The market estimates that the January demand forecast scale will be about 540 billion KRW, roughly twice the usual level (100 billion to 300 billion KRW).

Although issuance volume will increase, the market expects these corporate bonds to be fully absorbed. Some bond experts predict that with successful demand forecasts leading to increased issuance, the issuance scale could grow up to 10 trillion KRW. Above all, the investment appeal remains valid in terms of interest rates. With the Monetary Policy Committee meeting scheduled for the 14th, where an interest rate hike (from 1% to 1.25%) is almost certain, it is expected that the previously unstable interest rates will stabilize, reviving corporate bond investment sentiment.

Institutional demand for high-yield bonds aiming for preferential allocation of IPO shares is also expected to support the increased issuance demand of low-credit companies. With large-scale IPOs worth trillions of KRW planned in the first half of this year, including LG Energy Solution, Hyundai Oilbank, and Hyundai Engineering, only funds holding high-yield bonds can receive the 5% preferential allocation benefit of IPO shares. Eun-ki Kim, a researcher at Samsung Securities, said, "Since last year, as IPOs have increased, the number of high-yield funds receiving preferential IPO allocations has grown significantly," adding, "As investment demand for BBB-rated bonds increases, it leads to an increase in bond issuance."

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