Kookmin Bank, a unit of South Korea’s second-largest lender group, is marketing a U.S. dollar-denominated bond as the nation’s issuers continue to seek floating-rate debt.
Kookmin is offering a three-year note at 105 basis points more than the three-month London interbank offered rate, according to a person familiar with the matter, who asked not to be identified because the matter is private. China Shipping Group Co. is selling a five-year security at a yield of about 280 basis points over Treasuries and Hong Kong & China Gas Co. a perpetual debt at about a 5 percent yield, other people said.
Borrowers from Korea have dominated issuance of floating-rate notes in the Asia-Pacific region outside Japan this year, with Kookmin being the third. The nation’s issuers have the second-highest amount of debt due in the region this year after China, according to data compiled by Bloomberg. Korean borrowers have $26.9 billion maturing, after China’s $44 billion.
“There is definitely an increasing trend for floating rate notes,” Shankar Narayanaswamy, the Singapore-based head of credit strategy at Standard Chartered Plc, said in a phone interview today. “Korean banks need money across the term-structure and a lot of real money investors are expressing an interest in the instrument to cover for risks of rising Treasury yields,” he said.
Dollar bond yields for Korean issuers are at a record low of 3.62 percent, according to a JPMorgan Chase & Co. index.
Korea Development Bank sold a three-year note at 62.5 basis points more than three-month Libor on Jan. 13 and Export-Import Bank of Korea raised $750 million for the same maturity at 75 basis points more than quarterly Libor.
Kookmin’s proposed notes are expected to be rated A1 by Moody’s Investors Service, one rank lower than KEXIM’s and KDB’s recent bonds. The bank sold $500 million of three-year securities at 125 basis points more than Libor in October.
The U.S. Federal Reserve is planning to pare back its bond-buying program this month, which investors speculate could lead to higher Treasury yields. Ten-year benchmark yields rose by 127 basis points last year, the most since 2009.
The cost of insuring corporate and sovereign bonds rose in Australia and dropped in Japan today, according to traders of credit-default swaps.
The Markit iTraxx Australia index advanced 0.8 basis points to 102.5 basis points as of 11:12 a.m. in Sydney, Citigroup Inc. prices show. The benchmark is set to increase for a fourth straight day to close at its highest level since Dec. 17, according to data provider CMA.
The Markit iTraxx Japan index fell 1 basis point to 80.3 basis points, according to Citigroup prices as of 9:41 a.m. in Tokyo. The measure is poised to drop after touching its highest level since Nov. 21 yesterday, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 144 basis points as of 8:16 a.m. in Singapore, Australia & New Zealand Banking Group Ltd. prices show. The gauge has ranged from 129.3 basis points to 144.5 basis points this month, after closing yesterday at its highest level since Oct. 10, CMA data show.
Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.
The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.