Bond Market Takes a Breather... Attention Needed on Credit Bond Yields and Issuance Trends This Month

3-Year Treasury Bonds and Corporate Bond Yields Fall After 9 Trading Days
10-Year Treasury Bonds at Annual High Also Decline
CD and CP Rates Rise...Need to Watch Credit Spread Trends
Gas Corporation AAA 2-Year Bonds Fail
Incheon Urban Corporation AA+ 3-Year Bonds Fail
"Urgent Need for Government Fund Execution Speed and Cautious Monetary Policy"

Bank of Korea Governor Lee Chang-yong and Chief Economic Secretary Choi Sang-mok attended the 'Emergency Macroeconomic and Financial Meeting' held at the Korea Federation of Banks building in Jung-gu, Seoul on the 23rd. After the meeting, they are adjusting their glasses. Photo by Yoon Dong-ju doso7@

[Asia Economy Reporter Hwang Yoon-joo] The bond market, which had been in a panic, has taken a breather. Following the impact of a 50 trillion won government measure, government bond yields fell. However, it is uncertain whether this effect will last, as the U.S. Federal Reserve (Fed) and the Bank of Korea are scheduled to raise their benchmark interest rates next month. Experts point out that continuous attention should be paid to changes in credit bond yields and issuance market trends going forward.

According to the Korea Financial Investment Association on the 25th, the 3-year government bond yield closed at 4.305%, down 0.190 percentage points from the previous day. This marks the first decline in the 3-year government bond yield in nine trading days since the 12th. The 10-year yield also closed at 4.503%, down 0.129 percentage points. The 10-year yield had previously reached a yearly high of 4.632% in the previous trading session.

The corporate bond market also calmed down. For the first time since the 12th, yields fell. On this day, the yield on unsecured 3-year corporate bonds (AA-) dropped 0.144 percentage points to close at 5.592%. The yield on BBB- grade corporate bonds also fell 0.145 percentage points to 11.446%.

On the other hand, the yields on 91-day negotiable certificates of deposit (CDs) and commercial paper (CP) rose slightly to 3.91% (up 0.01 percentage points) and 4.33% (up 0.08 percentage points), respectively. This is analyzed as a phenomenon where government bonds stabilize first, followed by credit bonds with a time lag.

The stabilization of the bond market was largely influenced by the 50 trillion won government measures announced on the 23rd. The government decided to support a 20 trillion won Bond Market Stabilization Fund (BMSF), a 16 trillion won corporate bond and commercial paper purchase program, 3 trillion won in liquidity support for securities firms facing shortages, and 10 trillion won in guarantee support for Housing and Urban Guarantee Corporation projects.

On the 24th, Lee Bok-hyun, Governor of the Financial Supervisory Service, stated at the National Assembly audit, "Just today, we mobilized the BMSF to support hundreds of billions of won in corporate funds." Authorities plan to supply liquidity this week through purchases of project financing asset-backed commercial paper (PF ABCP), among other measures.

Governor Jin-tae Kim of Gangwon Province held a press conference on the 21st to announce the guarantee debt situation and future plans regarding the Gangwon Jungdo Development Corporation. On the 24th, Governor Kim held a press briefing to express regret over the credit market tightening that arose in connection with Gangwon Province's refusal to guarantee the payment of the Legoland ABCP.

However, distrust in the bond market has not been completely resolved. The AAA-rated 2-year corporate bond issued by Korea Gas Corporation was undersubscribed the previous day. For the 5-year bond, the yield was set 0.43 percentage points higher than the individual market average for the same maturity, but only 20 billion won was issued, far below the target. The AA+ rated 3-year green bond issued by Incheon Urban Corporation was also undersubscribed.

The upcoming interest rate hikes by Korea and the U.S. next month may exacerbate anxiety in the bond market. A bond market official explained, "Currently, the trigger for the liquidity crunch in the bond market is Gangwon Province's refusal to provide payment guarantees, but the fundamental cause is the unexpectedly aggressive rate hikes." He added, "The two most important factors now to resolve the liquidity crunch in the bond market are the speed of government liquidity supply execution and the prudence of monetary policy."

Market participants emphasize the need to monitor the issuance market atmosphere going forward. Notably, Korea Hydro & Nuclear Power is set to issue 120 billion won worth of green bonds at the end of this month. Considering the bond market sentiment, the issuance maturities will be segmented from 3 years up to a maximum of 30 years, and the amount will be adjusted accordingly. This will be Korea Hydro & Nuclear Power's first green bond issuance domestically, drawing attention to whether it will be successfully absorbed.

Senior Researcher Hwang Se-woon of the Korea Capital Market Institute said, "We need to check this month's credit spreads and issuance market trends (such as unsold or undersubscribed bonds) to ultimately verify the effectiveness of the government measures."

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