Growing Uncertainties
Growing economic uncertainties are making even A-grade corporate bonds lose ground. Over the past month, the ratio of unsold corporate bonds of A-grade companies rose 33.9 percentage points. According to the financial investment industry, nine companies predicted demand for corporate bonds of about 1.33 trillion won (US$1.12 billion) since a meeting of the Monetary Policy Committee. The nine companies are five AA-grade companies and four A-grade companies. Among them, SK Hynix, Hubis, GS Retail, Poongsan Corp., and e-Mart successfully predicted demand without unsold corporate bonds. In particular, SK Hynix and GS Retail increased the amounts of corporate bonds by 50 billion won (US$42 million). In contrast, institutional investors wanted less than what GS EPS, TS Corp., Dongwon Industries, and OCI issued for the first time.
Institutional investors recorded less demand for the five-year corporate bonds of GS EPS and Dongwon Industries. GS EPS was planning to issue 50 billion won (US$42 million) in five-year corporate bonds, but less demand lowered the amount to 30 billion won (US$25 million). Instead, the company increased the amount of seven-year corporate bonds by 20 billion won (US$17 million). Dongwon Industries originally planned to issue 100 billion won (US$84 million) in corporate bonds, but demand stood at 70 billion won (US$59 million), falling short of their expectations. Among A-grade companies, TS Corp. wanted to issue 50 billion won (US$42 million) in corporate bonds, but demand was merely 30 billion won (US$25 million). OCI saw 74 billion won (US$62 million) out of 100 billion won (US$84 million) in corporate bonds remain unsold. Thus, in Aug., the rate of unsold AA- and A-grade corporate bonds climbed by 0.7 percentage points and 33.9 percentage points to 2.4 percent and 37.1 percent from a month ago.
Before the meeting of the Monetary Policy Committee in Aug., a prediction of corporate bonds was one case of the Meritz Financial Group, which was only 100 billion won (US$84 million). The expansion of external instability weakened investor confidence. Last month, the credit ratings of shipbuilders and aviation companies were lowered, concerning more investors about what to invest in. Some stock market experts say that demand will continue for ultra-excellent or short corporate bonds. There are many factors for the volatility of interest rates, such as uncertainties of the Chinese economy in the third quarter, the possibility of the U.S. raising its standard interest rate, and weakened exchange rates in emerging economies.