3.875% Recorded on the 14th Near Yearly Low
Market Reflects Expectations of Easing Tightening
Card Bond Issuance Increases Amid Anticipated Funding Cost Reduction
As the global trend of tightening comes to an end and expectations for base rate cuts spread, the interest rates on specialized credit finance bonds have entered the 3% range for the first time in seven months. Card companies are also quickly moving to raise funds.
According to the Bond Information Center of the Korea Financial Investment Association on the 18th, the interest rate on specialized credit finance bonds (AA+, 3-year maturity) recorded 3.920% as of the 15th. This marks the first time in seven months since May 22 that the rate has entered the 3% range. On the 14th, it sharply dropped by 0.22 percentage points from the previous day to 3.875%, the lowest since the 3.847% recorded on April 10. At the beginning of last month, the rate was close to 5%, but it quickly fell to near its yearly low.
Last week, the U.S. Federal Reserve (Fed) hinted at three rate cuts next year during the Federal Open Market Committee (FOMC) meeting, which is interpreted as fostering expectations of the end of tightening and easing across financial markets. Although John Williams, President of the New York Federal Reserve Bank, warned against excessive market expectations and Federal Reserve Chair Jerome Powell clarified that rate cuts were discussed, the market enthusiasm had already spread. The market is reacting more strongly to expectations of six rate cuts rather than the three (0.75 percentage points) suggested by the Fed, influencing both stock and bond markets.
As market expectations for rate cuts grow, card companies are accelerating their fundraising efforts. According to the Korea Securities Depository, the amount of card bonds issued by card companies from the 1st to the 15th of this month was 1.46 trillion KRW. This is close to the total card bond issuance of 1.65 trillion KRW in October, when market interest rates were near 5%. Last month, card bonds worth 3.445 trillion KRW were already issued, raising more than 2.5 times the amount compared to the same period last year.
Although interest rates are still higher than the 1-2% range seen in 2021 when specialized credit finance bond rates were low, and considering the time lag for market rates to be reflected in funding costs, some voices say it is still too early to feel reassured. Nevertheless, given that it will be difficult to return to the past low-interest-rate levels anytime soon, even this level of rate stabilization is considered a relief. A representative from a specialized credit finance company said, "Even if we cannot return to past levels, just dropping from the 4-5% range to the 3-4% range provides some breathing room. It is still too early to be fully reassured, but the atmosphere this year is to manage costs and risks as stably as possible."
Increasing the issuance of ESG (Environmental, Social, and Governance) bonds is also considered one of the precautionary measures. ESG bonds are issued to raise funds for projects that create social value. They are issued for the purpose of strengthening financial support for self-employed individuals and small business owners and are categorized into green bonds, sustainable bonds, and social bonds. Although their use is somewhat restricted, since various support projects have been carried out anyway, they help reduce overall funding costs. By participating in the financial authorities' win-win finance policies, companies can also aim to enhance their image. An industry insider explained, "Since social contribution projects have been steadily conducted, issuing related funds as ESG bonds, which generally have lower interest rates, can reduce interest expenses."
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