Corporate bond issuance in South Korea hit an all-time high in the first half of the year as companies rushed to capitalize on strong investor appetite for bonds triggered by lingering doubts about the Korean economy and underlying stocks amid U.S-China trade frictions.
According to the Korea Financial Investment Association on Monday, corporate bond issuance in the first six months of the year came to 48.8 trillion won ($41.4 billion), up 12.7 percent from the same period a year.
The previous high was in the first half of 2018 when it reached 43.3 trillion won. The only other time corporate debt issuance topped 40 trillion won was in the wake of the global financial crisis in 2009 when it totaled 40.3 trillion won.
Analysts said the protracted trade tensions between the United States and China have dampened global trade and raised expectations of future policy rate cuts from major economies, lowering market rates to create a favorable environment for companies to issue debt at a cheaper cost.
The annual yield on three-year AA- rated corporate bonds in Korea fell to 1.97 percent in late June from 2.29 percent last December. As of July 5, it has slipped further to 1.92 percent.
The market uncertainty stemming from the trade war between the world’s two largest economies has also increased investors’ appetite for safer assets like bonds. While Korean corporate bond yields have fallen, they are still higher than those of treasury bonds, appealing more to investors. As of late June, the three-year government bond yielded 1.472 percent.
Bond offering is expected to stay active as market yields are expected to slip further.
The U.S. Federal Reserve is anticipated to cut interest rates by at least 25 basis points from the current 2.25-2.50 percent at its next meeting on July 30-31. Bets for a rate cut have also been building up at Korea’s central bank when it convenes for its policy meeting on July 18.
Bond issues tend to fizzle out in July-August for the summer break and first-half settlements.
By Chung Seok-hwan and Kim Hyo-jin
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