By Jiyeun Lee and Taejin Park – Jun 19, 2012
A rally in South Korea’s corporate debt is drawing to an end after yields on the securities fell to the lowest level in five years relative to government bonds, according to UBS Hana Asset Management Co.
The premium investors demand to hold three-year AA bonds instead of similar-maturity sovereign notes was 41 basis points on May 29, down 26 basis points from the start of the year and the lowest since September 2007, according to data compiled by Koscom Corp. The gap widened to 46 basis points on June 18 and may increase a further 20 basis points this year, according to Hwang Jae Hong, who oversees 12 trillion won ($10.4 billion) as head of fixed income at UBS Hana, a Seoul-based joint venture between UBS AG (UBSN) and Hana Financial Group.
“Company bonds gained from October as, with the central bank holding rates, investors didn’t see much opportunity in sovereign bonds,” Hwang said in a June 18 interview in Seoul. “There should now be a technical widening in corporate spreads with investors starting to reap gains, although Korean companies’ fundamentals are still strong.”