Samsung, Woori, Lotte Issue Corporate Bonds 2-5bp Below Benchmark
Bond Market Cold Snap Eases, Corporate Bonds Yield Around 3.7%
"Impact of Treasury Yields Falling Below Call Rates"
As warmth returns to the previously turbulent bond market, credit card companies are issuing specialized finance bonds at interest rates lower than the average private bond evaluation rates (Minpyeong interest rates). There is growing anticipation that the soaring interest rates on card loans and automobile installment financing may also stabilize.
According to the financial industry on the 12th, major credit card companies such as Samsung Card, Woori Card, and Lotte Card have recently succeeded in consecutive 'under issuance' earlier this month. Under issuance refers to a corporate bond issuer filling the subscription amount at a level lower than the Minpyeong interest rate.
Samsung Card announced on the 5th that it issued 280 billion KRW worth of unsecured general bonds at an interest rate 5 basis points (1bp = 0.01 percentage points) lower than the Minpyeong rate. Woori Card also disclosed on the 7th that the issuance rate for 280 billion KRW of unsecured general bonds was set 5bp lower than the Minpyeong rate. On the same day, Lotte Card announced it successfully raised a total of 120 billion KRW through unsecured general bonds, including 110 billion KRW for a 2-year 1-month maturity and 10 billion KRW for a 3-year maturity. The issuance rate was 2bp lower than the Minpyeong rate.
The specialized finance bond market is actually considered to have somewhat calmed down. According to the Korea Financial Investment Association's Bond Information Center, as of the 8th, the interest rate for specialized finance bonds (AA+ rated, 3-year maturity) stood at 3.772%. This is the lowest level in about 1 year and 9 months since May 30, 2022 (3.712%). Compared to the peak of 4.939% recorded on October 31 last year, it has dropped by approximately 25%.
This is interpreted as a result of the bond market regaining momentum, making fundraising easier. A bond trader explained, “Since the beginning of this year, government bond yields have fallen below the call rate (the market where short-term funds are traded between financial institutions), leading to increased demand for relatively high-interest corporate bonds.” He added, “In March, some economic indicators such as the US Services Purchasing Managers' Index (PMI) pointed to a slowdown in inflation, spreading expectations that domestic and foreign benchmark interest rates would decline.”
As the funding situation for credit card companies improves, there is growing expectation that the interest rates on credit products, which had surged, will ease. Since credit card companies do not have deposit functions like banks, they typically raise about 70% of the required funds through bond issuance. When specialized finance bond rates decrease, the funding burden on card companies is reduced accordingly, leading to lower interest rates on card loans. An industry insider said, “If the funding rates for specialized finance bonds decrease, the interest rates on card loans and automobile installment financing can also decline,” adding, “These changes are usually reflected with a lag of about three months.”
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