[Edaily Marketin Reporter KIM YEON-SEO ] The corporate bond market entered a seasonal lull in August as the summer vacation period coincided with the half-yearly report filing season. With the schedule for demand forecasting of general corporate bonds virtually empty this week, only the issuance of hybrid capital securities by WooriFinancialGroup(316140)is scheduled.

According to investment banking (IB) industry sources on the 3rd, in the public corporate bond market this week (August 3–7), WooriFinancialGroup (AA-) will conduct a bookbuilding process targeting institutional investors.

WooriFinancialGroup will begin the bookbuilding process on the 6th for the issuance of 270 billion won worth of hybrid capital securities. Depending on the results of the bookbuilding, the company plans to increase the issuance amount to a maximum of 400 billion won.

These bonds have a maturity of 99 years and feature a “99NC5” structure, which allows the issuer to exercise an early redemption option (call option) five years after issuance. KYOBOSECURITIESCO.,LTD., KIWOOM Securities, and HanyangSecurities are serving as lead underwriters. The scheduled issuance date is the 13th.

Excluding hybrid capital securities, there are no demand forecasting schedules for general corporate bonds this week. August is typically a period when corporate and institutional investor activity slows significantly, as it coincides with the submission period for semi-annual reports containing first-half earnings and the peak vacation season for these groups.

So far, only WooriFinancialGroup and Kyobo Life Insurance have announced plans for August issuances. Kyobo Life Insurance (AA0) is considering issuing up to 400 billion won in 30-year hybrid capital securities. The structure is a “30NC5,” which allows the call option to be exercised five years after issuance. NH INVESTMENT & SECURITIES, Shinhan Investment & Securities, and Korea Investment & Securities are serving as lead underwriters, with the scheduled issuance date set for the 31st of this month. As of now, no companies have finalized plans to issue corporate bonds through a public offering.

Corporate Bond Yields

Fall

… Credit Spreads Narrow Slightly Corporate bond yields

trended downward last week. The yield on 3-year “AA-” rated unsecured corporate bonds stood at 4.478% per annum on the 31st of last month, down 6.3 basis points (1 bp = 0.01 percentage point) from the previous day. On the same day, the yield on 3-year government bonds fell by 7.3 basis points to 3.758% per annum.

This decline in yields is attributed to the government signaling its commitment to stabilizing long-term interest rates through its August treasury bond issuance plan, as well as expectations that demand for treasury bonds will increase ahead of inclusion in the World Government Bond Index (WGBI). Increased volatility in the domestic stock market, which strengthened the preference for safe-haven assets, and a decline in the won-dollar exchange rate also contributed to the trend.

However, the credit spread—which reflects investor sentiment toward corporate bonds—widened. According to BondWeb, the credit spread—the difference between the yield on a 3-year government bond and that on a 3-year “AA-” rated corporate bond—widened by 4.5 basis points, from 67.5 basis points on the 1st of last month to 72 basis points on the 31st. Typically, a widening credit spread indicates relative weakness in corporate bonds compared to government bonds and a contraction in investor sentiment.

The market is watching to see if the issuance market will regain momentum after September, when the summer off-season ends. There is speculation that corporate bond supply could increase, particularly in September and October, if companies resume issuance to prepare for year-end funding needs. However, given the high volatility in stock markets and interest rates, companies may continue to adopt a wait-and-see approach, carefully monitoring market conditions to time their issuances.

A bond market official stated, “Although market interest rates fell last week, credit spreads widened, indicating that investor sentiment toward corporate bonds remains weak,” adding, “After a lull in issuance throughout August, issuance is likely to resume in September—once the vacation season ends—led by high-quality companies.”