[Edaily Marketin LEE GEON-EOM Reporter] The Military Mutual Aid Association, the only major mutual aid association in Korea to raise funds through commercial paper (CP), issued 1.5 trillion won worth of CP in the first half of this year alone. Although the association had publicly stated last year that it would reduce short-term funding due to increased financial capacity resulting from higher inflows into its member funds, analysts say that the expansion of issuance was inevitable as favorable conditions in the CP market persisted.

According to Seibro, the securities information portal of the Korea Securities Depository, on the 2nd, the Military Mutual Aid Association’s CP issuance volume for the first half of this year totaled 1.5 trillion won, a 15.4% increase from the 1.3 trillion won recorded in the same period last year.

The Military Mutual Aid Association secures long-term borrowings through agreements with commercial banks with maturities ranging from 1.5 to 3 years. Under these agreements, the association repays the debt every three months and then reissues (refinances) it. Consequently, as of the end of last month (June), the outstanding balance stood at 7500억 won, reaching a cumulative total of 1조5000억원 after two refinancing issuances. Even accounting for these rollovers, the amount has increased significantly compared to last year.

Previously, the Military Mutual Aid Association had announced that it would gradually scale back its commercial paper (CP) issuance due to expanded financial capacity resulting from increased inflows into its member funds last year. In other words, just one year after announcing plans to reduce CP issuance, it has instead increased the issuance volume.

Typically, mutual aid associations prioritize stable asset management and long-term profit generation, preferring predictable methods such as bank borrowing over the short-term CP market. In fact, other mutual aid associations are refraining from entering the CP market due to concerns about a credit crunch. Among major domestic mutual aid associations, the Military Mutual Aid Association is virtually the only one that relies on the short-term market. This is why the market is focusing on the increase in the Military Mutual Aid Association’s CP issuance.

Market observers attribute the Military Mutual Aid Association’s decision to reverse its initial stance and pursue aggressive funding to the recent favorable market conditions and the overwhelming appeal of interest rates. As liquidity has increased—driven by “semiconductor money” flowing into the short-term bond market, including CPs, led by SK hynix(000660)—funding rates for high-quality issues have remained at attractive levels.

In fact, according to BondWeb, total CP issuance in the first half of this year reached 282.7547 trillion won, an increase of approximately 19% (about 45 trillion won) compared to the 237.6824 trillion won issued during the same period last year. Net issuance, which reflects actual capital inflows into the market, also rose by 17.9% during the same period, from 12.9212 trillion won to 15.2301 trillion won.

In particular, the concentration of funds into “A1”-rated CPs—the highest credit rating category, which includes the Military Mutual Aid Association—was especially pronounced. In the first half of this year, the issuance volume of A1-rated CPs reached 260.2983 trillion won, an increase of more than 45 trillion won compared to the 214.8578 trillion won recorded in the same period last year. This means that high-quality A1-rated issues absorbed the majority of the increase in total CP issuance during the first half of the year.

The interest rate advantage in terms of cost is also clear. As of yesterday, the yield on 91-day CP stood at 3.14%, significantly below not only the yield on 3-year government bonds (3.79%) but also that on 3-year corporate bonds (4.47% for AA- rated bonds). Analysts note that the current funding environment makes it significantly more cost-effective to roll over short-term CP than to tie up funds by issuing long-term bonds or corporate bonds.

The prevailing view is that, given its solid creditworthiness and top-tier rating, the Military Mutual Aid Association would have found it difficult to ignore this “low-interest-rate opportunity.”

In response, an official from the Military Mutual Aid Association stated, “We did not increase CP issuance due to any specific issues,” adding, “As market interest rates were so attractive during the process of securing liquidity, the scale of CP issuance inevitably increased to some extent.”

Meanwhile, the Military Mutual Aid Association’s CP credit rating has been assigned an “A1” by Korea Ratings Corporation(034950), Korea Credit Rating, and NICEHoldings.