[Digital Today reporter Sangyeop Oh] Institutional funds are pouring into securities firms' corporate bonds despite rising market rates. Improved earnings on the back of a strong stock market and the appeal of higher interest income appear to be supporting demand.

On Sept. 9, the financial investment industry said Daishin Securities, Hana Securities and DB Financial Investment, which launched the first bond bookbuilding of the month, secured 4.265 trillion won of orders for a combined 600 billion won of issuance. That is about 7.1 times the combined target amount.

Daishin Securities received 1.59 trillion won of orders for 150 billion won. Hana Securities attracted 2.015 trillion won for 300 billion won. DB Financial Investment drew 660 billion won for 150 billion won.

Pricing terms were also favorable, not just the order size. Based on the target amount, Daishin Securities filled its 2-year and 3-year tranches at levels 10 basis points and 11 basis points below individual fair value estimates, respectively. Hana Securities also secured its target at rates 7 basis points and 9 basis points lower, respectively.

This means demand was sufficient even when the issuers offered interest rates below the average valuation yields calculated by private bond valuation agencies.

DB Financial Investment confirmed it will raise the issuance amount to 200 billion won. Even after the increase, the spreads on its 1.5-year and 3-year tranches were set at 3 basis points and 7 basis points below the average valuation yield for bonds of the same credit rating. That means conditions below valuation benchmarks were secured not only by AA-rated Daishin and Hana Securities but also by A+-rated DB Financial Investment.

Institutional demand for brokerage bonds has continued this year. In May, Korea Investment & Securities received 2.495 trillion won of orders for a 250 billion won offering. In July, Samsung Securities also secured 1.87 trillion won of demand for a 300 billion won issue.

Improving earnings at brokerages are cited as a key driver. With stock trading rising, commission income from brokerage and revenue from financial products increased, and expectations for debt repayment capacity also rose, the analysis said.

Hana Securities posted net profit of 273.1 billion won in the first half of this year, up 155.7 percent from a year earlier. DB Financial Investment recorded first-half operating profit of 77.8 billion won, exceeding half of its full-year 2025 operating profit of 116.7 billion won.

Higher interest rates are also drawing institutional demand. Rising rates are an interest burden for issuers, but for investors buying new bonds they are an opportunity to secure higher interest income.

As a result, demand appears to be flowing into bonds of securities firms with strong credit and favorable business conditions, with investors seeking to hold them to maturity and receive interest.

A decline in corporate bond supply from non-financial companies is also affecting supply and demand. Hana Securities said corporate bond issuance from January to July this year, excluding financial holding companies and securities firms, was about 34 trillion won, down from 46 trillion won in the same period last year.

Over the same period, corporate bonds saw net redemptions of about 9 trillion won, while net short-term funding rose by about 9 trillion won. Companies are replacing corporate bond repayments with short-term borrowing.

The analysis also said reduced supply last month, typically an off-season for corporate bond issuance, built up pent-up demand and supported this month's bookbuilding. Institutional funds seeking investments and securities firms' issuance demand coincided.

Securities firms are also issuing corporate bonds to extend maturities on short-term debt. They increase short-term funding in line with stock market trading and expansion of operating assets, then convert part of it into medium- to long-term corporate bonds.

Daishin Securities plans to use the proceeds to repay commercial paper. Hana Securities plans to use funds to repay commercial paper, call money and electronic short-term bonds. DB Financial Investment will also deploy funds for purposes including repayment of electronic short-term bonds.

The move is intended to reduce the burden of repeatedly repaying and reissuing short-maturity debt and to manage funds more stably. If issuance is increased when institutional demand is strong, funding channels can be diversified and the risk of maturities concentrating at specific points can be reduced.

Still, for the strong demand to continue, confidence in securities firms' earnings and creditworthiness must be maintained. If rates keep rising, institutions may become more cautious about purchases due to concerns over bond price declines, and issuers may face higher interest burdens during refinancing.

Even if the target amount is filled at rates below valuation benchmarks, actual funding costs can vary depending on market rates and final terms after upsizing, making it difficult to judge that the burden has eased based on order size alone.

Kim Sang-man (김상만), a researcher at Hana Securities, forecast that "corporate bond issuance has been weak this year, but it is not at a level that has sharply fallen compared with previous years because issuance by financial companies such as financial holding companies and securities firms has increased," and that "if base rate hikes continue and the high-rate phase becomes prolonged, conditions could gradually be created for corporate bond issuance to increase."