Bond Yields Fall... SK Broadband, Hyundai Steel, and Others Preparing Corporate Bonds Show 'Bright Prospects'

After the Monetary Policy Committee Meeting, Korean Treasury Bond Yields Fall
Institutional Investors Likely to Increase Demand for High-Grade Corporate Bonds
Large Corporations Expected to Reduce Refinancing Costs

As expectations grow that the Bank of Korea will cut interest rates by the second half of the year at the latest, large corporations preparing to issue corporate bonds have also raised their expectations for reduced financing costs. Major companies such as SK Broadband, SK Incheon Petrochem, and Hyundai Steel, which are about to conduct demand forecasts for corporate bonds, are optimistic about the decline in government bond yields, which serve as the benchmark for corporate bond issuance rates.

Lee Chang-yong, Governor of the Bank of Korea, is delivering opening remarks at a press conference related to the January Monetary Policy Committee interest rate decision held on the 11th at the Bank of Korea in Jung-gu, Seoul. Photo by Joint Press Corps

According to the investment banking (IB) industry on the 12th, SK Broadband, SK Incheon Petrochem, and Hyundai Steel are preparing to issue corporate bonds. SK Broadband plans to issue bonds worth 150 billion to 300 billion KRW with maturities of 3 and 5 years, with SK Securities and NH Investment & Securities as lead managers. The desired interest rate for the corporate bond demand forecast was presented as the average market yield of bonds with the same maturity (evaluated by private bond rating agencies) plus or minus 30 basis points. The demand forecast (bidding) is scheduled for the 15th.

SK Incheon Petrochem is conducting a demand forecast today for corporate bonds worth 150 billion KRW with maturities of 2, 3, and 5 years, with SK Securities as the lead manager. If institutional investors show strong demand during the bond bidding, the issuance amount may be increased up to 300 billion KRW. The desired bidding interest rate was presented as the average market yield of bonds with the same maturity plus or minus 30 basis points.

Hyundai Steel is preparing to issue corporate bonds worth 300 billion KRW with KB Securities, NH Investment & Securities, Korea Investment & Securities, and Shinhan Investment Corp as lead managers. Orders will be accepted within a range of the individual average market yield of corporate bonds for 2, 3, and 5 years plus or minus 20 basis points. The demand forecast will be conducted on the 15th, and depending on the volume of investment orders, the company plans to issue corporate bonds worth up to 600 billion KRW.

Meanwhile, following the Bank of Korea’s Monetary Policy Committee meeting the previous day, government bond yields and other market interest rates fell further, leading to expectations of a surge in 'buy' orders for high-quality corporate bonds. The phrase "need for additional rate hikes," which had previously been included in the monetary policy direction statement, was reportedly removed, causing government bond yields and other market interest rates to drop by about 4 to 5 basis points across maturities.

Corporate bond issuance rates are determined by adding credit spreads (credit risk premiums) to government bond yields. For example, if the government bond yield is 3.50% and the corporate bond credit spread is 30 basis points, the bond issuance rate becomes 3.80%. When there is no significant change in corporate credit ratings and government bond yields fall, bond issuance rates decrease accordingly. This allows companies to lower their financing costs.

Dave Chia, an economist at Moody’s Analytics, stated in a report released after the Bank of Korea’s Monetary Policy Committee meeting the previous day, "High interest rates have increased household debt burdens and slowed consumption, leading to a slowdown in South Korea’s economic growth," and forecasted that "the Bank of Korea is likely to cut rates around May or thereafter."

An IB industry official said, "As market interest rates fell after the Bank of Korea’s Monetary Policy Committee meeting, institutional investors’ demand to buy bonds at relatively low interest rates will increase," adding, "As long as there are no additional rate hikes and expectations remain that rates will be cut either in the first or second half of the year, investment preference for bonds will continue to rise."

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