Korean Dollar Bonds Advance as SK Innovation Completes Offering

SK Innovation Co., the South Korean oil refiner, sold dollar bonds as the nation’s corporate notes in the currency are among the leading gainers in Asia outside Japan this month amid low supply.

Korean debt rose 0.23 percent since July 31 while Chinese notes climbed 0.26 percent, the top performers among Asia’s five largest markets, according to indexes compiled by JPMorgan Chase & Co. SK Innovation yesterday sold $350 million of five-year securities, with bids exceeding the amount offered by almost eight times, said a person familiar with the matter.

Asia’s fourth-largest economy expanded 2.3 percent in the second quarter from a year earlier, up from 1.5 percent in the first three months of the year, official data showed last month. The average yield on Korean bonds has fallen 44 basis points from a high in June to 3.16 percent, according to JPMorgan indexes.

“Credit spreads on Korean dollar bonds are narrowing as local companies have not increased their debt supply by a lot this year,” said Choi Jin Young, a Seoul-based fund manager at Mirae Asset Global Investments.

SK Innovation’s 2018 notes were quoted at 100.77 on the dollar, compared with the issue price of 99.683, according to Standard Chartered Plc prices.

Elsewhere in the dollar bond market in Asia, Macquarie Bank is marketing three-year securities to yield 160 basis points more than Treasuries, a person familiar with the matter said, asking not to be identified because the terms aren’t set.

Credit Risk

The cost of insuring bonds in the Asia-Pacific region from nonpayment increased, according to credit-default swap traders.

The Markit iTraxx Japan index climbed 2.5 basis points to 97 as of 9:22 a.m. in Tokyo, Citigroup Inc. prices show. The measure is poised for its first increase since July 31, according to data provider CMA.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan increased 2 basis points to 144 as of 8:59 a.m. in Singapore, Australia & New Zealand Banking Group Ltd. prices show. The benchmark is on course to climb for the first time in three days, according to CMA.

The Markit iTraxx Australia index rose 1 basis point to 118 basis points as of 10:23 a.m. in Sydney, according to National Australia Bank Ltd. The gauge is also headed for its first increase in three days, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. An increase signals deteriorating perceptions of creditworthiness, while a drop 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.

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