Special Bonds and Bank Bonds Fully Subscribed—Is Credit Market Anxiety Easing?

(Seoul=Yonhap Infomax) Jee Hyun Son – The previously frozen credit market is showing signs of recovery, drawing attention from market participants.

Demand concerns are gradually subsiding as special bank bonds, bank bonds, and negotiable certificates of deposit (CDs) offered via book-building have been fully subscribed almost immediately upon issuance.

According to the bond market on the 21st, more than 3 trillion won ($2.3 billion) worth of bank bonds—including Industrial Bank of Korea (IBK) bonds, Korea Development Bank (KDB) bonds, and NongHyup Bank bonds—were issued the previous day.

On this day, major commercial banks such as KB Kookmin Bank, Shinhan Bank, Hana Bank, and Woori Bank are set to issue nearly 2 trillion won ($1.5 billion) in bonds.

As a result, large-scale book-building for bond issuance took place the previous day, with all offerings reportedly fully subscribed as soon as they opened.

Issuance yields were set at levels not significantly above the average market rates (Minpyeong rates).

For example, 2-year special bank bonds from IBK and KDB were each issued at a yield of 2.95%, totaling 1.38 trillion won ($1.04 billion). The yield premium was only about 0.6 basis points above the Minpyeong rate, indicating a limited overshoot.

Woori Bank’s 1-year coupon bond was issued at 2.850% for 400 billion won ($307 million), with the yield set 3.3 basis points above the Minpyeong rate.

KB Kookmin Bank and Shinhan Bank each issued 1-year floating rate notes (FRNs) at 2.920%, totaling 400 billion won ($307 million) and 700 billion won ($538 million), respectively. The yield was 28 basis points above the 1-month CD rate.

CDs issued the previous day, including 6-month and 1-year maturities, exceeded 1 trillion won ($770 million) in total, with yields of 2.94% and 2.98%, respectively, and were smoothly absorbed by the market.

Market participants note that the acute concerns over credit instruments seen earlier this month have somewhat eased, with signs of renewed activity in the market.

“We requested as much commercial bank paper as possible regardless of yield, and demand was so strong that everything was snapped up very quickly,” said a bond dealer at Securities Firm A. “It seems that funds previously sidelined by concerns are gradually returning.”

A bond dealer at Bank B added, “Short-term bank bonds have become very popular recently. Whenever a book-building opens, it closes immediately.” He further explained, “With yields having risen significantly, carry trades are now attractive for portfolios preparing for next year.”

Attention is now focused on whether this renewed momentum will extend beyond bank bonds to the broader credit market, including non-bank financial bonds and corporate bonds.

“The recovery is evident in short-term special bank and bank bonds, but we are watching to see if it will fully spread to non-bank financial bonds,” said a dealer at Securities Firm A.

A bond dealer at Securities Firm C commented, “Some non-bank financial bonds are now being issued at levels close to the Minpyeong rate, indicating a shift in sentiment. As spreads widen, we are seeing incremental buying.”

jhson1@yna.co.kr

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