Record bank bond maturities set to pressure corporate debt market
A record volume of bank bonds in South Korea is due to mature in the fourth quarter, raising concerns that strong demand for high-quality bank debt could crowd out corporate bonds in the market.
According to Hanwha Investment & Securities Co., bonds issued by the country’s five major banks worth 27.1 trillion won ($20 billion) will mature in October-December. The amount is more than double the 10-year average of 11.8 trillion won and exceeds the previous record of 20.6 trillion won set in the fourth quarter of 2022.
Another 21 trillion won in securities backed by time deposits will mature in December, the largest amount in three years excluding the 23.5 trillion won that matured in March.
Heavy bank bond issuance has already pushed up yields on other debt.
The yield spread between three-year AA- rated capital bonds and government bonds stood at 72.3 basis points as of Wednesday, up from 70 basis points a week earlier. The spread for A+ rated capital bonds also widened to 150.6 basis points from 148.6 basis points.
“Increased issuance of bank bonds at yields above market rates could temporarily crowd out demand for public and corporate bonds as well as bonds issued by credit finance companies,” said Park Moon-hyun, an analyst at KB Securities.
Banks are increasing bond issuance as deposit inflows slow.
Bank deposits grew 4.5 percent on year in August, still outpacing loan growth of 4.2 percent for the 14th consecutive month, but the gap narrowed sharply from 3.1 percentage points in May to 0.3 percentage point.