Semiconductor Market Capital Shifts Spark Bond Weakness, Corporate Issuance Falls for First Time in 4 Years

Amidst a booming semiconductor market and concerns over inflation driven by Middle East tensions, capital has been flowing into the stock market, pushing up market interest rates. This capital movement has led to a decrease in savings bank deposits and an increase in surrender payouts from life insurance companies, creating a vicious cycle that reduces demand for bonds and further raises interest rates. Global government bond yields have also risen concurrently, amplifying market anxiety.

From January 1 to May 15 this year, the volume of corporate bond issuance stood at 50.065 trillion won, marking a 16.5% decrease compared to the same period last year, showing a downward trend for the first time in four years. The yield on 3-year corporate bonds with a credit rating of AA- has climbed to 4.378%. This yield, which has risen by 91.9 basis points since the beginning of the year, has prompted companies to diversify their funding methods through mezzanine instruments such as rights offerings, equity-linked swaps (ELS), and convertible bonds (CB). The upward trend in global interest rates, including the US 30-year Treasury yield surpassing 5% for the first time since June 2007 and the Japanese 10-year government bond yield hitting a 29-year high, has influenced the weakness in the domestic bond market.

Interest in stable absolute return-seeking funds has grown. Billionfold Asset Management's Assets Under Management (AUM) surpassed 2.0304 trillion won as of May 12, 2024, an approximately eightfold increase in just over a year compared to the 250 billion won level in the first half of last year. Market-neutral strategies minimize exposure to market direction, thus reducing volatility, and have recorded an average return of 0.82% even during periods of significant KOSPI decline. Consequently, interest in defensive absolute return strategies has expanded, particularly among domestic pension funds, public funds, and global multi-manager platforms.

Larry Fink, CEO of BlackRock, has recommended that individual investors consider capital investment in AI-related ventures.