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Demand for South Korean corporate bonds is on a sharp rise as cash-rich investors, searching for alternatives in a low-rate environment and dull stock market, snatch up such debts ahead of another expected rate cut by the country’s central bank, industry data showed Wednesday.
According to the data, investors proposed buying 1.06 trillion won ($1.01 billion) worth of corporate debt in the past week, up from 590 billion won a week earlier.
Analysts said a growing appetite for corporate debt came as the Bank of Korea, the country’s central bank, is widely expected to make another rate cut in either October or November, as Asia’s fourth-largest economy is feared to relapse into a soft patch.
In August, the central bank cut its base rate by a quarter percentage point to 2.25 percent to help the economy grow following the deadly sinking of the Sewol ferry in April that left more than 300 people, mostly high school students, dead or missing.
The rate reduction would further drag down market rates, prodding investors to consider picking up high interest-paying corporate debt in advance.
“Demand for corporate bonds will remain strong until the end of the year, given that debt supply is expected to be cut down the road,” said Kim Eun-ki, an analyst at NH NongHyup Securities.
Investors had been on the lookout for investment tools that promise high returns amid low deposit rates, many of them going for safer assets such as state bonds and bank deposits, but they are now moving into other fixed-income destinations such as corporate bonds, analysts said.
In the meantime, more corporate borrowers are also tapping the local debt market to take advantage of low borrowing costs and strong investor demand.
Industry data shows some 1.35 trillion won worth of corporate bonds were placed in the past week, compared with 756 billion won a week earlier.
In tandem with low market rates, yields on corporate debts have also fallen sharply.
The yield on three-year corporate debt rated “AA-” fell to 2.680 percent on Tuesday, from 2.885 percent on Sept. 1, with the comparable figure for corporate debts graded “BBB-” dropping to 8.428 percent from 8.624 percent over the stated period.
“The recent rally could be a boon to top-rated corporate borrowers, and ample liquidity may further flow into fixed-income securities,” said Lim Jung-min, an analyst at Woori Investment & Securities. (Yonhap)
According to the data, investors proposed buying 1.06 trillion won ($1.01 billion) worth of corporate debt in the past week, up from 590 billion won a week earlier.
Analysts said a growing appetite for corporate debt came as the Bank of Korea, the country’s central bank, is widely expected to make another rate cut in either October or November, as Asia’s fourth-largest economy is feared to relapse into a soft patch.
In August, the central bank cut its base rate by a quarter percentage point to 2.25 percent to help the economy grow following the deadly sinking of the Sewol ferry in April that left more than 300 people, mostly high school students, dead or missing.
The rate reduction would further drag down market rates, prodding investors to consider picking up high interest-paying corporate debt in advance.
“Demand for corporate bonds will remain strong until the end of the year, given that debt supply is expected to be cut down the road,” said Kim Eun-ki, an analyst at NH NongHyup Securities.
Investors had been on the lookout for investment tools that promise high returns amid low deposit rates, many of them going for safer assets such as state bonds and bank deposits, but they are now moving into other fixed-income destinations such as corporate bonds, analysts said.
In the meantime, more corporate borrowers are also tapping the local debt market to take advantage of low borrowing costs and strong investor demand.
Industry data shows some 1.35 trillion won worth of corporate bonds were placed in the past week, compared with 756 billion won a week earlier.
In tandem with low market rates, yields on corporate debts have also fallen sharply.
The yield on three-year corporate debt rated “AA-” fell to 2.680 percent on Tuesday, from 2.885 percent on Sept. 1, with the comparable figure for corporate debts graded “BBB-” dropping to 8.428 percent from 8.624 percent over the stated period.
“The recent rally could be a boon to top-rated corporate borrowers, and ample liquidity may further flow into fixed-income securities,” said Lim Jung-min, an analyst at Woori Investment & Securities. (Yonhap)
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Articles by Korea Herald
