CP Interest Rate Hits 5.0% on the 9th... Highest in 13 Years and 10 Months

Highest since January 14, 2009 (Annual 5.17%)
Corporate funding demand surges in CP market

[Asia Economy Reporter Hwang Yoon-joo] The corporate paper (CP) interest rate hit 5%, marking the highest level in 13 years and 10 months since January 2009.

According to the Korea Financial Investment Association on the 9th, the A1-rated CP (91-day maturity) interest rate rose by 0.02 percentage points from the previous day to 5.00% in the morning session. This is the highest level since January 14, 2009 (annual 5.17%).

The CP interest rate was only 1.55% annually on January 3 this year but sharply increased to 2.09% (May 26), 3.01% (August 25), and 4.02% (October 19). In particular, it has been rising for 35 consecutive trading days since September 21 (annual 3.13%).

The main reason is that companies have recently been flocking to the CP market as a means of raising funds. SK Group is a representative example. SK Inc. will issue 100 billion KRW each of 3-year CP (annual 5.629%) and 5-year CP (5.745%) on the 10th. This is the first time SK has issued long-term CP with maturities over one year. Previously, SK Networks issued 100 billion KRW of 44-day CP, and Lotte Construction issued 49 billion KRW of 6-month CP.

Meanwhile, financial authorities announced liquidity support measures exceeding 50 trillion KRW on October 23 and launched the Bond Market Stabilization Fund (BMSF). While government bonds have stabilized, credit instruments are still experiencing a difficult liquidity crunch.

Recently, Financial Services Commission Chairman Kim Ju-hyun and bank CEOs held a meeting at the Bankers’ Hall, expressing their intention to minimize bank bond issuance and continue liquidity supply to stabilize the funding market. Of the 95 trillion KRW support plan by the five major financial holding companies, 90 trillion KRW is expected to be executed through banks. As part of this, purchases of CP, ABCP, short-term bonds, and repurchase agreements (RP) will be undertaken.