Credit Spread Stabilizes, Bond Demand Remains Weak

The domestic credit spread is showing signs of stability, but analysis indicates that bond demand remains weak. Although some maturities of asset-backed securities and corporate bonds have been mentioned as undervalued, the increase in issuance and the slowdown in foreign investment have been pointed out as burdens on supply and demand. Lee Seong-kyung, a researcher at BNK Investment & Securities, stated that the credit spread has recorded minimal fluctuations compared to the end of the previous month and shows no significant difference from the average of the last three months. The credit spread indicates how much higher the interest rates on credit bonds are compared to government bond rates, and a widening spread signifies increased credit risk. As of August 11, the spreads for special bonds and bank bonds showed similar levels, while the spreads for asset-backed securities and corporate bonds were higher for the 2-year and 3-year maturities. The researcher analyzed that the maintenance of the spread is due to an increase in selling centered around the 2-year bonds, driven by a concentration of equity funds. Currently, the credit spreads for asset-backed securities and corporate bonds appear attractive, indicating a relative undervaluation. However, with the increase in new bond issuances, the supply and demand conditions are not improving, and the slowdown in foreign investment is negatively impacting long-term interest rates. The researcher warned that the rise in long-term interest rates in the United States could affect domestic long-term bond investment sentiment.