Bond Yields Fall Across the Board Amid Expectations of Rate Cuts

Bank deposit interest rates have also dropped sharply to the low 3% range, making new capital securities an attractive option for investors.

New Capital Securities Offer Higher Interest Rates

New capital securities, also known as perpetual bonds, have been gaining attention from individual investors due to their relatively high interest rates compared to bonds with the same credit rating.

Major financial holding companies are expected to continue issuing new capital securities within the year, and investors who missed out on previous opportunities are still showing interest.

Characteristics of New Capital Securities

New capital securities have several characteristics that make them appealing to investors. They have higher interest rates than other bonds with the same credit rating, and they have no maturity or a long term of 30 years or more.

Most new capital securities have a 5-year maturity call option, which allows the issuer to make early redemption. If the issuer exercises the call option, investors can receive a fixed amount of interest or dividends every year for 5 years.

Interest Rates on New Capital Securities

The interest rates on new capital securities issued by major financial institutions this year are in the 4-5% range. This is significantly higher than the recent sharp decline in bond interest rates and bank deposit interest rates, which have fallen to the low 3% range.

An official from the securities industry noted that individual investors are paying attention to new capital securities due to their relatively high interest rates. “As market interest rates and deposit interest rates fall, individual investors looking for high interest rates are paying attention to new capital securities,” they said.

Upcoming Issuances of New Capital Securities

Several major financial holding companies, including Woori Financial Group and Nonghyup Financial Group, are expected to issue new capital securities within the year. This is due to the financial authorities’ move to strengthen capital regulations.

However, it’s worth noting that the absolute interest rate of new capital securities may also fall as market interest rates decline due to expectations of an imminent cut in the base rate.

Risks and Considerations

New capital securities have a subordinated payment order, which means they are considered riskier than senior bonds. Investors should carefully consider this when investing in new capital securities.

While new capital securities from financial holding companies and banks are relatively stable, they still carry risks due to their subordinated nature.