Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
Corporate bond market shows signs of revival
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By Anna J. Park
Trading volume resurges due to improved investor sentiment
By Anna J. Park
The country's corporate credit market is showing signs of a revival, as the trading of corporate bonds with longer term maturities is increasing, after bottoming out just a few weeks ago.
According to data by NICE Investors Service, a local corporate credit ratings agency, the trade volume of corporate bonds with maturities of over five years rose during the past week to 201 billion won ($154 million). That marks a sharp rise from the third week of November, when weekly trading stood at a mere 40 million won, when the Korean corporate credit market faced increased uncertainties.
The local credit markets had been hit hard since late October, due to the repercussions of Gangwon Province's refusal to redeem asset-backed commercial paper (ABCP) issued to finance the development of Legoland Korea. Even though financial authorities provided around 50 trillion won in liquidity in late October to calm market jitters, the local corporate credit markets ― let alone the ABCP market ― continued to reel until mid-November.
Since then, the weekly trade volume of longer-term corporate bonds has been on a gradual increase. It rose to 61 billion won in the fourth week of November, and to 130 billion won the following week.
Considering that deteriorated investor sentiment normally hits longer-term maturity bonds the hardest and as they bear more risks than shorter maturity bonds, market watchers positively view the gradual recovery signs displayed over the past month.
“It is a usual recovery pattern in corporate bond markets that debts with shorter maturities improve first, followed by a recovery of bonds with longer-term maturity dates,” said Kim Ki-myung, a credit analyst at Korea Investment & Securities. “Thus, the trade volume increase of corporate bonds with longer-term maturities can be seen as a significant change that hints at improved market sentiment.”
The weekly trade volume of corporate bonds with shorter maturities ― three years or five years ― also showed an upward trend during the period. Weekly trading stood at 233 billion won in the past week, an increase of eight times in just a month, when the weekly volume stood at only 30 billion won.
As the local corporate credit markets are recovering gradually, the total amount of corporate bonds issued is also rising, thanks to improved investor sentiment. Data from the Korea Financial Investment Association (KOFIA) shows the aggregate amount of corporate bond issued during the first nine days of this month stood at 1.34 trillion won, which is more than double the 544 billion won logged during the same period last month.
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However, some market watchers point to the widening gap between top-rated firms and companies with poor credit ratings when it comes to attracting capital in the bond market.
“Most of the currently traded corporate bonds with long-term maturities are issued by stable, top-rated firms,” said Oh Chang-seop, an economist at Hyundai Motor Securities.
Meanwhile, Gangwon Province completed the redemption earlier this week of 205 billion won in ABCP issued to finance Legoland Korea. The local government said it paid all of the money to financial institutions on Monday, after approving the plan last Friday, allowing it to redeem the ABCP issued by the Gangwon-backed developer.
Yet, financial authorities continue to monitor the local project financing-related ABCP markets, as they warn that the risk of a credit crunch in the real estate market remains strong.