As the gap between long- and short-term interest rates widens in the domestic bond market, corporations' short-term funding has increased for five straight months.
According to the "May corporations' direct financing performance" released by the Financial Supervisory Service on the 30th, CP and short-term bond issuance in May totaled 259.3870 trillion won, up 32.7832 trillion won (14.5%) from the previous month.
The increase in short-term funds was led by short-term bonds. Short-term bonds rose 43.2944 trillion won (25.4%) from the previous month. CP fell 10.5112 trillion won (18.7%) due to a base effect after issuance surged in April on seasonal factors.
Total CP and short-term bond issuance has increased for five consecutive months this year. Issuance volumes were 153 trillion won in January, 159 trillion won in February, 200 trillion won in March, 226 trillion won in April, and 259 trillion won in May.
The industry sees corporations' demand for short-term funding growing as the gap between long- and short-term interest rates widens, with the benchmark CP (91-day) rate at 3.14% per year as of the 29th, while the unsecured corporate bond (AA-, 3-year) rate is 4.40% per year, a difference of more than 1 percentage point. On June 27 last year, the gap between the CP rate (2.71%) and the corporate bond rate (2.97%) was around 0.3 percentage point.
Corporate bond issuance, on the other hand, was subdued. Corporate bond issuance in May was 18.7813 trillion won, down 3.4208 trillion won (15.4%) from the previous month. General corporate bonds fell 49.2%, and financial bonds fell 8.9%, respectively. In contrast, asset-backed securities (ABS) rose 8.7% on increased issuance by small and midsize corporations and financial companies.
General corporate bonds were issued mainly by high-grade names. All general corporate bonds issued in May were AA grade or higher, and there were no bonds issued rated A or below. An industry official said, "Typically, the share of high-grade bonds rated AA or higher is high, and in May, due to the seasonal off-peak period, there were no A-grade or lower issuances."
However, the outstanding balance of corporate bonds turned to an increase. As of the end of May, the outstanding balance of corporate bonds was 749.3958 trillion won, up 4.1151 trillion won (0.6%) from the previous month, rising for the first time in four months.
Meanwhile, funds raised through stock issuance totaled 1.3596 trillion won, up 946.0 billion won (228.7%) from the previous month. However, excluding SKC's 1.1671 trillion won rights offering, both the issuance volume and the number of deals decreased. Funds raised through initial public offerings (IPO) also fell 29.8% from the previous month.