KEPCO Bond Issuance Yield Returns to Early 4% Range... Reflecting Early Year Effect

On the 3rd, KEPCO bond 2-year yield fell 20bp to 4.4%

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Korea Electric Power Corporation (KEPCO) has successfully issued bonds worth 400 billion KRW. The issuance yield, which had slightly risen due to the burden of the issuance volume, recorded a decline thanks to the beginning-of-year effect.

According to the investment banking (IB) industry on the 5th, KEPCO confirmed the issuance of bonds worth a total of 380 billion KRW through a bidding process that morning. This includes 140 billion KRW in 2-year bonds and 240 billion KRW in 3-year bonds. The bids received were 340 billion KRW and 540 billion KRW respectively, totaling 880 billion KRW in inflows.

The issuance yields fell compared to before. The 2-year bond yield was 4.2%, and the 3-year bond yield was 4.3%, each down 20 basis points (1bp = 0.01 percentage points) from the issuance yields of 4.4% and 4.5% recorded on the 3rd. For the 3-year bonds, this is the first time since the ‘Legoland’ incident in October that yields have dropped to the 4.3% range. The KEPCO bond issuance yield (based on 2-year bonds) had fallen to 4.15% on the 22nd of last month due to bond market stabilization efforts but surged back to 4.4% on the 3rd. At the end of last year, a bill was passed in the National Assembly allowing KEPCO’s bond issuance limit to be increased up to six times, and the electricity rate hike in the first quarter was set at 13.1 KRW per kWh, lower than market expectations, which pushed yields higher. Concerns emerged that if KEPCO increases bond issuance to cover deficits, the supply-demand burden would intensify.

However, as KEPCO bond yields remain attractive in the bond market, institutional investors’ buying interest appears to have increased. The ‘beginning-of-year effect,’ where institutional investors’ demand for bonds generally rises, is also positively reflected. Kim Ki-myung, a researcher at Korea Investment & Securities, said, “Although concerns about supply burden have emerged in some parts of the market, January is seasonally a period when institutions resume fund execution, expanding the demand base for credit bonds, so there should be no problem absorbing the issuance volume.” He added, “KEPCO plans to implement additional rate hikes in the remaining three quarters, so the build-up effect is unlikely to appear.”

Meanwhile, KEPCO also received bids exceeding 2 trillion KRW in the electronic short-term bond (Jeondanchae) auction held on the same day for 500 billion KRW. For the 11-day maturity Jeondanchae, 280 billion KRW was sought and 1.41 trillion KRW was gathered, and for the 25-day maturity, 220 billion KRW was sought and 1.28 trillion KRW was gathered. They were awarded at yields of 3% and 3.11%, respectively.

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