This article was published on May 17, 2026, at 16:22 on Signal, the capital markets compass.
Korean companies' corporate bond issuance has declined for the first time in four years. Interest rate uncertainty that began late last year has continued to weigh on the corporate bond market this year, with the prospect of a benchmark rate hike within the year now emerging as a major concern, raising funding burdens for companies. Against this backdrop, some companies are moving to complete fundraising by issuing bonds before an actual rate hike takes place.
According to the Korea Financial Investment Association on Wednesday, corporate bond issuance from the start of the year through May 15 totaled 50.0065 trillion won. This is 16.5 percent lower than the 59.8885 trillion won recorded in the same period last year, breaking an upward trend that had lasted four years.
The biggest factor behind the slowdown in corporate bond issuance is interest rates. Rates have surged this year on concerns about inflation driven by the semiconductor boom and high oil prices, pushing up funding costs. As of May 15, the yield on three-year Korean Treasury bonds stood at 3.765 percent, the highest level in about three years since 2023. As Treasury yields rose, market rates were also pushed higher, with yields on three-year corporate bonds rated AA- jumping to 4.378 percent. That marks a rise of 91.9 basis points (1bp = 0.01 percentage point) since the start of the year alone.
The widening gap between the benchmark rate and market rates in recent times is being interpreted by some as reflecting caution equivalent to three to four benchmark rate hikes within the year. As a result, companies are opting for funding methods less directly tied to interest rates rather than issuing corporate bonds. More firms are actively turning to capital-raising tools such as rights offerings and price return swaps (PRS), or considering mezzanine instruments such as convertible bonds (CBs).
There are concerns that this trend will intensify further in the second half. If a rate shock occurs, corporate bonds could disappear from companies' funding options altogether. "Companies that were unable to issue bonds in the first quarter due to rising rates are now coordinating the appropriate timing, but confusion has grown as market rates have jumped more than 10 basis points," an investment banking (IB) industry official said. "With banks aggressively courting corporate clients by offering very low lending rates, the incentive to issue corporate bonds is diminishing, and companies will look first at borrowing from financial institutions."
Still, some companies are rushing to issue corporate bonds before an actual benchmark rate hike is implemented. May is typically considered an off-season for corporate bond issuance, but some firms are moving quickly to secure funds at even slightly lower borrowing costs. LG Electronics (066570.KS), Korean Air (003490.KS), Shinsegae (004170.KS), and Korea Investment & Securities are preparing demand forecasts for corporate bond issuances this month. "If the Bank of Korea raises the benchmark rate in the second half, market rates could climb even higher, so the mood is to issue corporate bonds quickly," another IB industry official said. "With the market quiet, institutional demand is also providing support."
