The turnover of the South Korean bond market reached an all-time high in 2012 due to investors’ flight to safety, with the value of stock transactions dropping to a four-year low, industry data showed Sunday.
The amount of bonds traded on the local market came to 7,320 trillion won ($6.88 trillion) last year, topping the 7,000 trillion won mark for the first time, according to the data by the Korea Exchange and the Korea Financial Investment Association.
The turnover of government bonds traded reached 4,695 trillion won, accounting for 64.1 percent of the total.
Last year’s bond turnover represented a 3.2-time increase from the 2,269 trillion won recorded 10 years earlier.
Market watchers attributed the record bond turnover to economic uncertainties that spurred investors to flock to safer debt instruments instead of more volatile equities.
According to the data, the stock market turnover stood at 1,648 trillion won last year, the lowest yearly amount since the 2008 global financial crisis.
Analysts predicted that market funds will likely move to riskier assets this year amid expectations for a global economic recovery.
In the meantime, Korean companies sold a record amount of bonds overseas last year on the back of low borrowing costs and an upgraded sovereign rating, data showed Sunday.
According to the data compiled by the Korea Center for International Finance, they sold a combined $39.1 billion worth of foreign currency-denominated debts last year, compared with $29.7 billion a year earlier.
Strong demand for debts sold by Korean companies and improved borrowing conditions helped local companies scurry to sell more debts last year, it said.
In September, global credit ratings agency Standard & Poor’s upgraded its sovereign credit rating for South Korea by one notch, joining two other major credit agencies, Moody’s and Fitch, which also had hiked their ratings on Korea by one notch.
S&P raised Korea’s credit rating from “A” to “A plus,” the fifth-highest level on its rating grade, and maintained its rating outlook for Asia’s fourth-largest economy at “stable.” It was the first upgrade by S&P for Korea in seven years.
Thanks to S&P’s upgrade, South Korea has recovered its sovereign ratings from all of the three agencies to the levels it held before the 1997-98 financial crisis.
According to the data, the average spread on five-year Korean debts sold overseas tumbled to the 130 basis point level, which was above comparable U.S. Treasuries, late last year from the 300 basis point level at the start of 2012.
Also, the average maturity of debts sold last year reached 6.5 years, longer than the average 5.5 years seen a year earlier.
“Borrowing costs declined and the maturity became longer on the back of global monetary easing and the upgrade in the sovereign rating,” said Yoon In-koo, an analyst at the KCIF. (Yonhap News)
