With Rate Cuts Looming, South Korea’s Bond Market Finds Its Spark (Yonhap)
SEOUL, Sept. 15 (Korea Bizwire) — South Korea’s corporate bond market is showing renewed strength as expectations of interest rate cuts fuel demand for higher-yielding securities, driving credit spreads to their lowest levels of the year.
According to data from the Korea Financial Investment Association and Infomax, the spread between three-year AA- corporate bonds and equivalent government debt narrowed to 47 basis points on September 12, the lowest since January. That compares with nearly 70 basis points at the start of 2025, underscoring how investors are flocking to corporate debt despite its higher risk profile.
The rally comes as markets bet on looser monetary policy. With U.S. inflation cooling faster than expected and labor data softening, some analysts now predict the Federal Reserve could cut rates as many as three times this year. The Bank of Korea has held steady but is under pressure to support a slowing economy, and speculation is rising that it could begin easing as early as October if housing-market risks subside.
Issuance is also expected to decline in the months ahead, further bolstering demand. September’s corporate maturities amount to about 5.5 trillion won, but that figure will taper to 4.2 trillion won in October and just 1.9 trillion won in December before surging again in January. Investors, wary of a quieter market at year’s end, are rushing to lock in yields now.
Recent offerings illustrate the feverish appetite. Daehan Electric Wire, returning to the market after 14 years, drew 8.9 trillion won in orders for an 800 billion won issue. Lotte Shopping attracted 9.7 trillion won in bids for a 1.5 trillion won sale, while iM Financial Holdings raised more than double its 1 trillion won target for hybrid securities. Even issuers with recent reputational setbacks — including SK Telecom, hit by a hacking scandal, and Posco International, facing workplace safety concerns — saw demand far outstripping supply.
“The market is discriminating,” said Choi Sung-jong, an analyst at NH Investment & Securities. “Investors are shunning weaker industries, but when stable companies or higher-grade credits appear, the money rushes in.”
With spreads near record lows and issuance set to shrink, the momentum suggests South Korea’s corporate bond boom could continue — at least until central banks’ next move clarifies the broader rate outlook.
Ashley Song (ashley@koreabizwire.com)
