Abundant Market Liquidity
Global investment banks are increasingly raising funds in the South Korean capital market as bond interest rates show a downward trend.
Nomura International Funding, for example, issued Arirang bonds worth 50 billion won (US$45 million) on August 29. The bond had a maturity of 20 years and a coupon rate of 3.050%. Last year, Nomura issued bonds worth a total of 180 billion won (US$162 million) in South Korea, and the bond issue on August 29 was its first in Korea this year. In June last year, its 20-year bonds had a coupon rate of 3.5%.
The three-year government bond yield fell to the 1% range and the yield on the 20-year bonds fell from 2.470% in early this year to 2.329% on August 30. Nomura International Funding has a credit rating of AA+.
Goldman Sachs issued Arirang bonds worth 136.6 billion won (US$122 million) this year alone, all with a maturity of 10 to 20 years. The company’s credit rating was AAA, the highest among the 10 investment grade ratings. Goldman Sachs made its debut in the South Korean bond market in May last year by issuing Arirang bonds worth 20 billion won (US$18 million).
Global investment banks are finding the South Korean market particularly attractive due to its abundant liquidity. These days, South Korean institutional investors are flocking to the bond market amid U.S. dollar appreciation and stock market fluctuations.
Those investment banks are focusing on long-term bonds with a maturity of at least 10 years and local insurers are actively purchasing the bonds. Improving Inter-Korean relations are contributing to the situation as well.