June Bond Yields Rise Amid Continued Tightening... Increase in High-Grade Corporate Bond Issuance

Last month, domestic bond yields rose influenced by the possibility of additional interest rate hikes despite the decision to keep the benchmark interest rates unchanged in both Korea and the United States.

According to the "June Over-the-Counter Bond Market Trends" released by the Korea Financial Investment Association on the 10th, as of the end of last month, the yield on 3-year government bonds was 3.662% per annum, up 20.3 basis points (1bp = 0.01 percentage points) compared to the end of the previous month. During the same period, yields on 5-year (3.663% per annum) and 10-year (3.675% per annum) bonds also rose by 21.3bp and 14.3bp, respectively.

Earlier, the Bank of Korea's Monetary Policy Committee decided on May 25 to keep the benchmark interest rate at 3.50% per annum, and the U.S. Federal Reserve's Federal Open Market Committee (FOMC) also decided to hold the benchmark rate steady on the 14th of last month (local time).

However, at that time, Jerome Powell, Chair of the U.S. Federal Reserve, strongly hinted at the possibility of additional rate hikes within the year, significantly reducing previous expectations that rate cuts would begin within this year.

The Korea Financial Investment Association analyzed, "Following the U.S. FOMC's indication of future rate hikes, domestic interest rates rose considerably, and since mid-last month, the UK also raised its benchmark interest rate by 50bp to respond to inflation, resulting in yields closing higher compared to the end of the previous month."

Last month, the volume of bond issuance decreased by 8.9 trillion KRW to 88.4 trillion KRW compared to the previous month, as issuance of government bonds, Monetary Stabilization Bonds, and financial bonds declined.

However, corporate bond issuance increased by 2.8 trillion KRW to 10.4 trillion KRW compared to the previous month.

In particular, the increase was relatively large in high-grade ratings such as AA grade (increase of 2.2 trillion KRW) and AAA grade (increase of 400 billion KRW).

Regarding corporate bond demand forecasting, a total of 38 cases (3.185 trillion KRW) were conducted last month, with the scale increasing by 805 billion KRW compared to the previous month.

Unsold bonds occurred only in two cases below BBB grade.

Last month, over-the-counter bond trading volume increased by 23.5 trillion KRW to 413.4 trillion KRW compared to the previous month, influenced by the rise in interest rates.

Individual investors showed investment demand for government bonds, credit card bonds, and corporate bonds, net buying 3.3 trillion KRW, while foreigners also maintained arbitrage incentives, net buying a total of 14.2 trillion KRW.