Bond Investment Polarization... Increasing Preference for Government Bonds, Local Bonds, and Special Bonds

Individuals, Net Purchase of 2.5032 Trillion KRW in October
22.5% Decrease from Previous Month
Net Purchase of Government Bonds, Local Bonds, and Special Bonds Increased
Net Purchase of Credit Bonds Decreased
ABS Down 79.2% from Previous Month
Corporate Bonds Down 35.6% from Previous Month

[Asia Economy Reporter Hwang Yoon-joo] As the Bank of Korea's 'big step' and Gangwon Province's refusal to guarantee payment for the 'Legoland Asset-Backed Commercial Paper (ABCP)' worsened the liquidity crunch, bond investment polarization became more pronounced. Last month, individuals expanded their investments only in high credit rating bonds such as government bonds, local bonds, and special bonds in the domestic bond market. In particular, purchases of Asset-Backed Securities (ABS) plummeted by nearly 80%.

According to the 'October 2022 Over-the-Counter Bond Market Trends' released by the Korea Financial Investment Association on the 10th, individuals net purchased a total of 2.5032 trillion won. This is a 22.5% decrease compared to the previous month (3.2313 trillion won).

Looking in detail, investment preferences varied by type. Net purchases of government bonds amounted to 730.5 billion won, up 34.4% from the previous month (543.5 billion won). Local bonds increased by 41.4% to 34.8 billion won from 24.6 billion won. Special bonds such as Korea Electric Power Corporation rose 27.6% to 404.8 billion won from 317.1 billion won.

On the other hand, during the same period, bank bonds decreased by 9.5% from 272.3 billion won to 246.4 billion won. Corporate bonds fell 35.6% from 1.1362 trillion won to 730.9 billion won. Other financial bonds sharply declined by 59.6% from 823.9 billion won to 332.2 billion won. Especially, ABS shrank by 79.2%, from 113.7 billion won to 23.6 billion won.

A representative from the Korea Financial Investment Association explained, "Due to the interest rate hike in October and the deepening liquidity crunch, bond issuance volume decreased, naturally reducing net bond purchases by both foreigners and individuals. However, notably, individuals reduced investments in credit bonds but actually increased purchases of government bonds and special bonds compared to last month."

However, the investment sentiment for special bonds remains uncertain. Recently, some AAA-rated special bonds have been partially undersubscribed, indicating a challenging market atmosphere. On the 25th of last month, Korea Electric Power Corporation's (AAA) 3-year bond was undersubscribed, and Incheon International Airport Corporation's (AAA) 3-year bond issuance was reduced to 40 billion won from the initially planned 60 billion won due to lack of demand. Korea Gas Corporation (AAA) and Incheon Urban Corporation (AA+) also experienced partial undersubscription.

Meanwhile, the bond issuance volume in October was 55.2 trillion won, down 8.8 trillion won from the previous month (64 trillion won). This decline was influenced by decreases in financial bonds, ABS, and corporate bonds. The outstanding issuance balance recorded 2,598.7 trillion won as net issuance of corporate bonds, Monetary Stabilization Bonds, financial bonds, and Monetary Stabilization Bonds decreased by 100 billion won.

Corporate bond issuance amounted to 3.7 trillion won, down 1.6 trillion won from the previous month. Credit spreads rose sharply due to credit tightening and decreased demand for credit bonds.

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