Idea of the Week: A Complete Guide to Korean IG Bonds! Are They Good for Reaping Excess Return?

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From 2022 onwards, Korean companies frequently issued USD bonds. Almost all of these bonds are investment-grade, and their yields are usually 0.5% to 1% higher than those of investment-grade bonds from other regions, which makes them a good choice under the current market condition. For this time's Idea of the Week, we compile our research article on Korean corporate bonds and screen some attractive bonds.

Korean issuers could be roughly categorised into two groups. One is high investment-grade issuers with a credit rating of AA, which is the same as the sovereign rating of Korea. Most of these issuers have Korean government backgrounds, such as the Korean Development Bank, the largest policy bank in Korea and wholly owned by the Korean government. Another group is BBB-rated issuers, which are mainly manufacturing and financial service companies with a strong presence, such as Hynix and Mirae Asset Securities.

Among high investment-grade issuers, we believe that investors could consider issuers shown in the table below, including Korea Development Bank, Korea Electric Power, and Korean Air, with credit spread in the range of 50-80 bps, above the average level for AA-rated peers. Therefore, they look suitable for investors seeking stable and low-risk returns.

Table 1: High Investment Grade Selection (AA)

Looking at BBB-rated issuers, the credit spread of some financial and semiconductor issuers widened as a result of aggressive rate hikes in Korea and the down cycle of semiconductors, leading to higher bond yields. Coupled with the fact that the credit quality of these issuers is still at a relatively decent level, we believe these bonds are attractive enough for investment.

Referring to the Bloomberg Asia USD bond Index, which also has an average credit rating of BBB and average duration of roughly 3 years, is currently yielding around 5.2%, the 2026 Hynix bond could provide an yield pick-up of 35 bps over the benchmark, while Mirae Asset and Korea Investment Securities bonds proffer an yield pick-up of 70 to 90 bps. In addition, the 2028 AUD bond issued by Shinhan Financial has an yield pick-up of 104 bps. Although this bond is a tier 2 bond, considering that the issuer is well-capitalised with stable operation, we thus believe that the difference in investment risk between Tier 2 and senior bonds is modest, and therefore investors may still consider it.

Table 2: Investment-grade Bond Selection (BBB)

It is noteworthy that “HYUELE 6.250% 17Jan2026 Corp (USD)” and “LGENSO 5.625% 25Sep2026 Corp (USD)" are members of Bond Express, enabling investors to trade at a lower cost. Moreover, "LGENSO 5.625% 25Sep2026 Corp (USD)" is a green bond, which is suitable for investors with ESG preferences. 

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold positions in KDB 4.750% 16Jul2024 Qsov (HKD), HYUELE 6.250% 17Jan2026 Corp (USD), LGENSO 5.625% 25Sep2026 Corp (USD) and the analyst who produced this report hold a NIL position in the abovementioned securities.

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