Kepco Bond Yields Nearing 6%... Drop to 3% Range This Year

[Asia Economy Sejong=Reporter Dongwoo Lee] The issuance yield of Korea Electric Power Corporation bonds (KEPCO bonds) has fallen to the 3% range. It is the first time in five months that the KEPCO bond yield, which had been absorbing funds from the market bond market, has dropped to the 3% range.

According to the Korea Financial Investment Association on the 22nd, the issuance yield of 3-year KEPCO bonds recorded 3.923% as of the 20th. The KEPCO bond yield showed a downward trend after hitting the annual high of 5.825% in October last year and then recording the 4% range in December of the same year.

Previously, KEPCO increased the issuance volume of KEPCO bonds to 30 trillion won last year to secure operating funds due to large-scale deficits. By issuing up to 3 trillion won per month on average of high-quality KEPCO bonds, a crowding-out effect occurred where corporate bonds of general companies were neglected.

The reason why the KEPCO bond issuance yield fell to the 3% range this year is due to the recent 'interest rate inversion' phenomenon where market interest rates fell below the base rate. It is analyzed that in the bond market, the base rate of 3.50% was recognized as the peak, leading to selling government bonds with lower yields than the base rate and buying KEPCO bonds and corporate bonds.

As institutional investors' preference for safe assets became clear, they turned their eyes to KEPCO bonds with the highest credit rating. In fact, the 3-year government bond yield, which is an indicator of market interest rates, is 3.330%, more than 0.1 percentage points below the base rate. Meanwhile, KEPCO bonds decided to issue 180 billion won of 2-year bonds at an annual rate of 3.836% and 320 billion won of 3-year bonds at an annual rate of 3.870% in the public bond auction.

It is also analyzed that the reduction in KEPCO's deficit due to electricity rate hikes is acting as a positive factor. The securities industry expects that the deficit, which reached 30 trillion won last year, will decrease to the 10 trillion won level this year as the government raised electricity rates by 13.1 won per kWh in the first quarter of this year.

However, some expect that it will not be easy for the KEPCO bond yield to remain at the 3% level this year. Kwang-yeol Han, a researcher at NH Investment & Securities, said, "The fact that the KEPCO bond issuance yield has fallen to the 3% range is largely due to the influence of government bond yields," but added, "Although it will be affected by the volatility of government bond yields, if we look only at KEPCO bonds, the yield is likely to rise again." KEPCO plans to issue about 20 trillion won of KEPCO bonds this year to secure operating funds.

Meanwhile, last year, the amendment to the KEPCO Act, which increased the KEPCO bond issuance limit from twice to five times the total amount of capital and reserves, was passed in the National Assembly, so KEPCO bonds are expected to serve as KEPCO's main funding channel for the time being.

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