Bond sales slow as issuers draw back

Korean corporate bond sales slowed to the least in three weeks yesterday as the highest yields in more than four months discouraged issuers.

KCC, a Seoul-based maker of paint and building products, led 300 billion won ($268 million) of offerings, the least since the five-day period ended May 17 and the slowest start to a month since January, according to data compiled by Bloomberg. Company note sales plunged to the least in four and a half years in May as borrowing costs rose and new rules increasing borrowers’ reporting requirements came into effect May 6.

Benchmark yields for AA-rated companies touched 3.17 percent this week, the highest since Jan. 22, after surging last month by the most since January 2011, according to data from the Korea Financial Investment Association. In the U.S., where AA rated corporate notes offer 2.28 percent, yields are also climbing after Federal Reserve Chairman Ben S. Bernanke signaled that extraordinary stimulus could be pared if there’s a sustained economic improvement.

“Bond yields are rising so sharply amid talks of the U.S. exit from quantitative easing,” said Yoon Yeo Sam, a Seoul-based fixed-income analyst at Daewoo Securities. “Borrowing costs are unlikely to fall back to record-low levels because the central bank isn’t expected to cut rates further. The heyday for issuers may be over.”

The Bank of Korea lowered the benchmark seven-day repurchase rate to 2.5 percent from 2.75 percent on May 9, its first trim since October, joining global easing from Europe to Australia. BOK Governor Kim Choong-soo and his board cut interest rates to spur growth and shield the nation’s exporters against the weaker yen, which is aiding Japanese rivals.

The yield on three-year sovereign notes rose to 2.81 percent on June 5, the highest since Jan. 2. U.S. jobs data today may further encourage the Federal Reserve to begin tapering asset purchases which have spurred fund flows into emerging markets.

Bloomberg