NO. 340 pages Weekly 340_ENG.pdf · 1yr and 2yr other financia l debentures spread dropped by 5bps to 83bps and 7bps to 80 bps, respectively. 3yr spread also declinded by 5 bp s to

NO. 340 pages

Sept. 28

2009

Rate changes in bond indices

KTB & MSB Market Overview

Bank Bonds and Other Fin. Debentures

Corporate Bond Market Overview

Swap Market Overview

ELS Market Overview

1

2

5

7

12

14

This document is for our clients only. Other than disclosures relating to KIS Pricing, it is based on credible information,

but we do not represent it is accurate or complete, and it should not be relied on as such. Therefore, we are not liable to

any investment activities that are based on this document. More information is available at bond.co.kr and our investment

portfolio management tool, KIS-Net.

Kyle Huh (02-3215-1477), Sohyoung Park (02-3215-1458)

1 No.340. Sep 28 2009

Rate Changes in Bond Indices

Spot Curve by bond type Swap Spread between KTB

Hankyung-KIS-Reuters, KOBI30, KOBI120 (Call reinvest index)

Market value weighted average YTM by ty

pe

Bond Index Duration

2 No.340. Sep 28 2009

KTB & MSB Market Overview

KTB & MSB

Last week, yield on 3yr and 5yr KTBs rose by 5bps to 4.42% and 3bps to

4.80%, respectively. That on 10yr also climbed by 4bps to 5.35%.

The spread between 3yr and 5yr KTBs narrowly tightened to 28bps.

Meanwhile, that between 5yr and 10yr somewhat increased to 55bps.

Due to worries over the FOMC and G20 meetings, combined with market

concerns on 10yr KTB auctions which were held more than expected and

on the BOK’s monetary policy, local bond market got off to a week start.

Depite their positive outlook for the economy, the FED announced that

they would maintain their target range low for the time being, which

coupled with foreign investors’ net purchase owing to expectations to

G20 meeting result ,and helped market rate turn lower.

1yr MSBs closed the week up by 13bps and 3.53%. 2yrs, however,

dropped by 13bps to 4.51%.

With 3M CD rate conspicuously up by 4bps from the previous week, a

large portion of the MMF assets flowed into the market, which led to

bearish shor-term market. The spread between 1yr and 2yr MSBs

remained at 98bps.

[Fig.1] Change in yield by bond type

2

2.5

3

3.5

4

4.5

5

5.5

20090102 20090217 20090331 20090514 20090625 20090806 20090917

KTB 1yr KTB 2yr KTB 3yr

KTB 5yr KTB 10yr

3 No.340. Sep 28 2009

[Fig.2] Change in yield by bond type

2

2.25

2.5

2.75

3

3.25

3.5

3.75

4

4.25

4.5

4.75

20090102 20090217 20090331 20090514 20090625 20090806 20090917

MSB 1yr MSB 2yr

[Fig.3] KTB SPREAD

20

30

40

50

60

70

80

90

100

110

120

20090102

20090123

20090217

20090310

20090331

20090421

20090514

20090604

20090625

20090716

20090806

20090827

20090917

(bp)5_3 SPREAD 10_5 SPREAD

[Fig.4] 3yr Credit SPREAD

50

55

60

65

70

75

80

85

90

95

100

2009

0720

2009

0803

2009

0817

2009

0831

2009

0914

SPECIAL BANK COPORATE

4 No.340. Sep 28 2009

[Fig.5] 5yr Credit SPREAD

40

50

60

70

80

90

100

110

120

2009

0720

2009

0803

2009

0817

2009

0831

2009

0914

SPECIAL BANK COPORATE

[Fig.6] KTB / MSB Trade Amt

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

3M 6M 1Y 2Y 3Y 5Y Over 5Y

(Mil)

KTB MSB Special

5 No.340. Sep 28 2009

Bank Bonds and Other Financial Debentures

Bank Bonds &

Others

I) Bank bonds

Depite bearish short-term bank bonds, longer-term bonds which

mature over 3yrs have been firmly maintained through the week.

While spreads of 3M and 6M, short-term bank bonds significantly up

from the previous week, those with a residual maturity over 3yrs

remained unchanged.

1yr bank bonds spread climbed by 2bps but 2yr spread declined by

1bp to 51bps. Meanwhile, 3yr spread remained unchanged at 82bps.

Last week, local banks sold about 960 billion won worth of bank

debt, which significantly decreased from the previous week.

Especially bank bonds by KDB sharply dropped from a week earlier.

II) Other financial debentures

While interest rates of bank bonds which mature within 1yr

significantly up, yield on other financial debentures exhibited the up

market, continuing their bullish trend.

1yr and 2yr other financial debentures spread dropped by 5bps to

83bps and 7bps to 80bps, respectively. 3yr spread also declinded by

5bps to 134bps.

With this week’s issuance of other financial debentures totaling 430

billion won, credit rating of the Lotte card raised to AA0 from AA-,

bringing out lower coupon rate.

6 No.340. Sep 28 2009

I) Change in Bank Bond AAA Yield

2.7

3.18

3.644

4.48

4.9 5.035.19

5.395.63

2.87

3.39

3.81

4.62

5.02 5.12 5.245.43

5.64

4.15

1.41.7

22.32.62.93.23.53.84.14.44.7

55.35.65.96.26.5

3M 6M 9M 1Y 1.5Y 2Y 2.5Y 3Y 4Y 5Y Maturity

YTM(%)

2009-09-18

2009-09-25

I) Change in Bank Bond AAA Credit Spread

0

30

60

90

120

150

180

210

240

270

300

330

360

390

08-10 08-12 09-02 09-04 09-06 09-08 09-09

Bank AAA 1yr - MSB 1yr,bp

Bank AAA 3yr - MSB 3yr,bp

I) Change in Credit Spread of Other Financial Debentures AA0

0306090

120150180210240270300330360390420450480510540

08-10 08-12 09-02 09-04 09-06 09-08 09-09

Other Fin. Debentures AA 1y r - MSB 1y r,bp

Other Fin. Debentures AA 3y r - KTB 3y r,bp

7 No.340. Sep 28 2009

Corporate Bond Market Overview

Primary

Market

The corporate bond market in the previous week grew by 20 billion won.

Total issuing amount totaled 560 billion won from SK Energy 22-1, 22-2 & 22-

3 (350 billion won), Taihan Electric Wire 149 (160 billion won), Hyundai

Powertech 22 (50 billion won), and maturing amount totaled 540 billion won

from LG 47 (150 billion won), Korean Air 24-1 (150 billion won), Skylife 9-2 (90

billion won), Kumho Tire 5 (75 billion won) and others.

For the upcoming week, total issuance amount on schedule are 740 billion

won from Shinhan Financial Holdings 53-2 (200 billion won), Korex 84 (130

billion won), Hyundai Oilbank 104 (100 billion won), Daewoo Construction 22-

1 & 22-2 (100 billion won), Doosan Mecatec 15-1 & 15-2 (80 billion won), SK

C&C 20 (70 billion won), whereas maturing issues on schedule are Shinhan

Financial Holdings 44-1 (350 billion won), POSCO 285 (200 billion won), KT

156 (180 billion won).

[Figure 1] Corporate Bonds Issued and Matured (unit: 100m won)

8 No.340. Sep 28 2009

Secondary

Market

While bond yields generally stayed within range, total trading totaled

1,272.3 billion won. Trading of bonds with AAA rating comprised 25.2% of

trading at 320 billion won, and AA+ and AA- rating bonds trading were

18.9% (240 billion won), and 19% (241.3 billion won) of the market,

respectively, leading the corporate bond secondary market. Bonds in the A

range comprised 42% of total trading.

Specifically, among AAA issues, Woori Financial Holdings, Shinhan Financial,

KT, Komipo, Kosep were active. Among AA issues, S-Oil, SK, Lotte Shopping,

Shinsegae, Hyundai Motors, E1, Samsung Electromechanics, LG Display,

Hyundai Mobis, Hyundai Steel were active.. Among A issues, LG Innotek,

Taeyoung Construction, Hyundai Merchant Marine, Hyundai Oilbankwere

active. Total trading amount (excluding new issues) decreased by 14.2% at

1,272.3 billion won and rating-wise A issues were 42.1%, AAA issues were

25.2%, respectively, of the market. Those under 1 year maturity were 32.6% of

the market and those between 1~3 years were 61.1% of the market.

[Figure 2] Corporate Bonds Trading (unit: 100m wo

n)

[Figure 3] Trading Activity Trend & Maturity-wise Weights (unit: %)

9 No.340. Sep 28 2009

Corporate

Bond Yields &

Spreads

Last week, bond yields were relatively stable with no particular directional

momentum, staying within range. Throuhgout the yield curve, mid to long-

term yields stayed relatively constant, whereas short term yields increased

slightly. Yields seems to have increased due to the antitipation of possible

rate hikes in the near future, in part after the announcement of the financial

market stablilization report by the Bank of Korea. Mid to long-term bonds

yields managed to drop slightly near the end of the week due to increased

demand, but short term yields were increased in anticipation of rate hikes.

As of the 25th, AAA public corporate issues (3Y) yields increased by 4bps at

5.20%, which is a 1bp decrease to 78bps above KTB, and A issues yields

increased by 5bps at 6.08%, which is at 166bp above KTB.

[Figure 4] AAA 3yr Credit Spread Trend (unit: %)

[Figure 5]Weekly Average Yields (unit: %)

10 No.340. Sep 28 2009

Credit Rating

Change

Last week, credit rating of Hanwha LNC jumped from BBB0 to BBB+, and

GS Construction and Hyundai Construction bothe jumped from A+ to AA-.

In the case of Hanwha LNC, the company has recently exerted efforts to

diversify its business, thereby providing investors with the confidence on a

brighter future. The company expects to gain competitiveness also through

the stabilization of raw material prices and positive market environments,

increasing profitability. In the case of GS Construction, the company is

maintaining a stable capital structure and currently holds a large amount of

short term financial assets due to decrease in working capital. PF loan

repayment has also decreased.

Convertible

Bond Market

The KOSPI index dropped 8.23 points to 1,691.48 points and the KOSDAQ

dropped 15.01 points to 516.52 points. The KOSPI index once dropped to the

1,660 level due to continued selloff by institutional and foreign investors.

Las week, new issue Ssamzie 16 B was issued and Kwangjin Wintec 1CB was

refixed. Envix2BW was converted.

<Figure 7> Weekly Stock Market

700

900

1100

1300

1500

1700

1900

20080922 20081217 20090319 20090616 20090909

KOSPI

09/18: 1699.71

09/25: 1691.48

11 No.340. Sep 28 2009

Convertible

Bonds Trading

Significant convertible bond trading last week were as follows: KIA Motors

275BW (1.43 billion won), LG Innotek 22CB (1.08 billion won), LG Innotek

23BW (1.34 billion won), Woongjin Holdings 39BW (2.53 billion won), Taihan

Electric Wire 146BW (13.12 billion won), Shinsung Holdings 21CB (1.87 billion

won).

Parity levels of ITM bonds (those over 1.2) averaged 1.85, a significant

decrease from 1.95 in the previous week.

<Figure 8> Junk Rating Parity Trend (unit: %)

0

0.5

1

1.5

2

2.5

3

20080922 20081105 20081218 20090205 20090320 20090506 20090618 20090731 20090914

0

0.2

0.4

0.6

0.8

1

1.2

ITM(Left)

ATM(right)

OTM(right)

*ITM(Parity 1.2 and higher, ATM: Parity 0.8~1.2, OTM: Parity 0.8 and below)

100

200

300

400

500

600

700

20080922 20081217 20090319 20090616 20090909

KOSDAQ

09/18: 531.53

09/25: 516.52

12 No.340. Sep 28 2009

Swap Market Overview

Major Yields Trend and Weekly Changes

Major Interest Rates Weekly Changes

-1.70%

-0.70%

0.30%

1.30%

2.30%

3.30%

4.30%

5.30%

6.30%

7.30%

USD TB 3Y USDIRS 3YKRW CRS 3Y KRWIRS 3YKTB 3Y

-0.06%

0.03%

0.18%

0.06%0.03%

-0.20%

0.00%

0.20%

KTB

KRW IRS

KRW CRS

USD IRS

USD TB

KRW CRS Curve Trend KRW IRS Curve Trend

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

03M 09M 02Y 04Y 06Y 08Y 10Y

20081231

20090911

20090925

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

03M 09M 02Y 04Y 06Y 08Y 10Y

20081231

20090911

20090925

IRS Spread Trend and Weekly Changes

IRS Spread Trend Weekly Changes

-0.40%

-0.30%

-0.20%

-0.10%

0.00%

0.10%

0.20%

0.30% KRWIRS 5Y-3Y

KRWIRS 10Y-5Y

-0.01%

0.02%

-0.02%

-0.01%

-0.01%

0.00%

0.01%

0.01%

0.02%

0.02%

0.03%

KRWIRS 5Y-3Y

KRWIRS 10Y-5Y

13 No.340. Sep 28 2009

Swap Basis Trend and Weekly Changes

Swap Basis Trend Weekly Changes

-6.50%

-5.50%

-4.50%

-3.50%

-2.50%

-1.50%

-0.50%

0.50%

SWAP BASIS(1Y)

SWAP BASIS(3Y)

0.34%

0.15%

0.00%

0.10%

0.20%

0.30%

0.40%SWAP BASIS(1Y)

SWAP BASIS(3Y)

Bond/IRS Trend Weekly Changes

-1.20%

-0.70%

-0.20%

0.30%

0.80%SWAP SPREAD(1Y)

SWAP SPREAD(3Y)

0.05%

0.09%

0.00%

0.20%SWAP SPREAD(1Y)

SWAP SPREAD(3Y)

Major Yield

& Spread

Rates 2008/12/31 2009/09/18 2009/09/25

Weekly

Change

Yearly

Change

US TREASURY 3y 0.90 1.47 1.45 0.03 0.55

US IRS 3y 1.69 1.90 1.87 0.06 0.18

KRW CRS 3y 2.00 3.30 3.20 0.18 1.20

KRW IRS 3y 3.29 4.22 4.28 0.03 0.99

KTB 3y 3.40 4.37 4.42 -0.06 1.02

IRS 5-3y 0.08 0.16 0.16 -0.01 0.08

Swap Basis 3y -1.29 -0.92 -1.08 0.15 0.21

Bond/IRS 3y -0.11 -0.15 -0.14 0.09 -0.03

(unit: %)

14 No.340. Sep 28 2009

ELS Market Overview

Stock Market The KOSPI dropped 4.21 points (0.25%) on Monday at 1,695.5 points.

However, due to foreign investors’ continued buying, the index reached 1,710

points on Tuesday. The KOSPI had risen 23.38 points (1.38%) at 1,718.88

points, which is the annual high. However, on Wednesday, the index dropped

to 1,710-level after institutional investors and foreign investors increased their

selling. On Thursday, the KOSPI dropped 17.59 points (1.03%) to 1,693.88

points. On Friday, the index was at 1,691.48 points at the end of the day. On

this day, the index reached levels as low as 1,686.41 pints after the NYSE

stumbled. However, progam buying sustained the index at the current level.

<Figure 1> KOSPI200, HSCEI Index Trend for the Past Year

ELS Primary

Market

This week, public issues increased to 49 new issues and private issues

totaled 95 issues, totaling 144 new issues. Total issuance amount of public

issues totaled 116.12 billion won, and private issues totaled 236.83 billion

won.

Weekly

Issuance Type

Out of the 144 new issues, 81%, or 117 issues, were Step-Down Hi-Five

types, and there were 23 option types, 2 miscellaneous types.