Lower grade bonds soar in H1

[THE INVESTOR] The value of unsecured corporate bonds of BBB or lower ratings issued during the first half of the year has nearly doubled from a year ago, Financial Supervisory Service data showed on July 28.

According to the data, the value of BBB or lower bonds issued during the period came to just under 1.39 trillion won (US$1.23 billion). In comparison, the figure for the same period last year is 757 billion won.

The rise in BBB or lower corporate bonds is thought to have been fueled by the 15.4 percent special tax rate on financial income from funds investing in such bonds. At present, the special rate is applied to dividends or interest income on up to 30 million won invested in the relevant vehicles.

Although the funds directed to lower rating bonds did rise, the market showed a rising preference for “A” or higher bonds.

The data showed that 80.9 percent of all unsecured corporate bonds issued during the period were rated “AA” or higher. The combined value of unsecured corporate bonds issued in the first half came to just under 18.88 trillion won, down 18.9 percent from the 23.32 trillion won recorded a year ago.

By Choi He-suk (cheesuk@heraldcorp.com)