The Korea Financial Investment Association announced on January 10 that bond issuance in South Korea totaled 580.5 trillion won (US$481.8 billion) last year, down 13.91% from a year ago to show a negative growth for the first time since 2010.
The issuance of special bonds by public institutions and the like declined by 32.4% while government bond and monetary stabilization bond issuance fell 15.3% and 14.3%, respectively. Corporate bond issuance decreased by 10 trillion won (US$8.3 billion) to 72.5 trillion won (US$60.2 billion).
These declines can be attributed to the interest rate hike during the last two months of 2016 based on predictions on Trumplation and the interest rate adjustment by the Federal Reserve of the United States. “The rising interest rates and volatility caused issuers and investors to hold off and the Ministry of Strategy & Finance reduced its government bond issuance in December,” the association explained.
The corporate bond market continued to show a trend of polarization by credit rating. Last year, the issuance of non-guaranteed corporate bonds reached approximately 50 trillion won (US$41.5 billion) and AA and higher accounted for more than half of it. In contrast, A and BBB and less took up about 10% and 5%, respectively.
The same trend was witnessed in demand forecasting, too. To be more specific, the participation rate increased 34.4 percentage points to 213.8% in 2016 with that associated with AA and higher amounting to 227.8% and that associated with BBB and less standing at 48.9%. That related to A-rated corporate bonds changed little to 199.4%. The issuance of private corporate bonds increased approximately 170 billion won (US$141 million) to 1.4 trillion won (US$1.16 billion).