Foreign investors’ Korean corporate bond balance dropped from 119.1 billion won on Feb. 21 to 67.3 billion won on March 24.
Although foreigners’ investment in the South Korean corporate bond market has formed a small portion, such a rapid increase in disinvestment has very few precedents. For example, the amount used to top one trillion won in the early 2010s and it did not fall below 500 billion won even during the global financial crisis of 2008.
The disinvestment is in stark contrast to the ongoing increase in their government bond balance. Specifically, the balance rose from 101,629.1 billion won on Feb. 21 to 104,812.8 billion won on March 24.
The credit spread as a corporate credit risk indicator is soaring with COVID-19 spreading across the world and economic recession risks surging. The spread, which can be calculated by subtracting the three-year government bond yield from the yield of unsecured three-year debentures with a rating of AA-, hit a 111-month low of 89.4 basis points on March 25. Such a high credit spread means that debentures are relatively low in value vis-à-vis the government bond and corporate financing will become increasingly difficult.