Foreign investors scoop up 8.5 trillion won in won-denominated bonds, but sentiment toward A-rated corporate bonds turns icy [fn Market Watch]

[Financial News] Foreign investors bought up nearly 8.5 trillion won in domestic bonds, and Korean Treasury yields plunged by as much as 40 basis points (1 bp = 0.01 percentage point) in a month. But the corporate bond market turned cold. In particular, the demand forecast participation rate for A-rated corporate bonds fell by more than 235 percentage points in a year, while that for high-grade bonds rated AA or higher rose. Even as government bonds rallied, investors showed a clear tendency to be selective about corporate credit risk.
According to the “October 2026 Over-the-Counter Bond Market Trends” report released on the 10th by the Korea Financial Investment Association (KOFIA), foreign investors’ net purchases of domestic bonds totaled 8.452 trillion won last month. They switched from net selling 1.158 trillion won the previous month to net buying, with purchases increasing by 9.61 trillion won in a month. Net purchases of government bonds alone amounted to 7.447 trillion won.
Korean Treasury yields fell across the curve as foreign investors bought government bond futures and demand for safe-haven assets rose. The 3-year Korean Treasury yield fell 29.6 bps from the end of the previous month to 3.715% per annum, while the 10-year yield fell 39.9 bps to 4.008%. The 30-year yield also ended at 4.124%, down 40.2 bps.
Foreign investors’ buying was influenced by increased arbitrage incentives following a decline in currency swap (CRS) rates, as well as inflows related to South Korea’s inclusion in the World Government Bond Index (WGBI). Demand for safe-haven assets amid weakness in global technology stocks also supported the rally in government bonds.
By contrast, the corporate bond market contracted. Last month’s corporate bond demand forecast volume was 2.055 trillion won, down 43.1% from 3.611 trillion won in the same month a year earlier. Institutional investors’ participation amount also plunged 45.1%, from 20.871 trillion won to 11.45 trillion won.
The notable point is the gap in investor sentiment by credit rating. The demand forecast participation rate for corporate bonds rated AA or higher rose 55.6 percentage points, from 567.6% in October last year to 623.2% this year. By contrast, the rate for A-rated bonds plunged 235.1 percentage points over the same period, from 625.3% to 390.2%. A-rated bonds had a higher participation rate than AA-rated and higher bonds last year, but this year investors have clearly favored high-grade bonds.
The contraction in A-rated corporate bonds was also pronounced in the primary market. Total corporate bond issuance in October fell 31.7% from the previous month to 7.381 trillion won. Issuance of A-rated bonds plunged 58.5%, from 1.938 trillion won to 805 billion won. This contrasted with a 3.1% increase in issuance of AA-rated bonds over the same period.
Yield spreads also diverged by credit rating. The 3-year credit spread on AA-minus corporate bonds over Korean Treasuries was unchanged from the previous month at 69 bps, while the spread on BBB-minus bonds widened from 650 bps to 652 bps. Despite the decline in Korean Treasury yields, the risk premium demanded of companies with relatively low creditworthiness did not narrow.
[email protected] Kim Hyun-jung Reporter