Corporate Bond Market Turns to a State of Net Redemption | Be Korea-savvy

Corporate Bond Market Turns to a State of Net Redemption

The financial district of Yeouido in Seoul. (Yonhap)

The financial district of Yeouido in Seoul. (Yonhap)

SEOUL, Nov. 16 (Korea Bizwire)As South Korea’s corporate bond market is facing the extreme risk of a credit crunch, the net issuance of corporate bonds was overtaken by the net redemption of corporate bonds this year for the first time in six years.

Hyundai Motor Securities Co. analyzed the change in the amount of net issuance and redemption of corporate bonds for this year and found that the nation’s corporate bond market had recorded a net redemption of 8.94 trillion won (US$6.76 billion) as of the previous day, a first since 2016.

The corporate bond market recorded a net issuance of 3.2 trillion won in 2017 and the annual size of net issuance ranged between 10 trillion won and 21 trillion won during the period from 2018 to last year.

In ordinary times, a state of net redemption can be interpreted as a sign that corporate financial conditions are improving. A good example of this was the 2016 case.

This year, however, is not the case. The size of net issuance slipped into negative territory despite the worsening of corporate financial conditions.

“In principle, any fundraising through the issuance of commercial paper (CP) has an unstable aspect since it is short-term fundraising,” said Oh Chang-seop, an economist at Hyundai Motor Securities.

“It’s not a good sign that businesses are rushing to issue CP even at the risk of paying a higher interest rate to investors.”

According to the Korea Financial Investment Association, the annual interest rate for CP with a maturity date of 91 days stood at 5.18 percent, up 3 basis points from the previous trading day, with new annual records being set every day.

J. S. Shin (

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