Short-term funding tilt grows as asset-backed securities top 40 trillion won, a 2026 high

Demand for funding is pouring into the asset-backed securities (ABS) market. As bank bond yields climbed, banks shifted their deposit-gathering toward time deposit securitization, which offers lower funding costs, while construction companies raised money through real estate project financing (PF) securitization with credit enhancement instead of plain corporate bonds. Demand is concentrated in the short-term money market, but demand for money market funds (MMFs), a key source of funds, is shrinking, raising expectations that upward pressure on short-term rates will build toward year-end.

According to Korea Investors Service, ABS issuance in September rose 15.6% from the previous month to 40.7 trillion won (about $30 billion), the largest monthly total this year. Cumulative issuance for January through September reached 277.5 trillion won (about $205 billion), up 9.0% from the same period last year.

The core driver of the September ABS market was time deposit securitization within collateralized debt obligations (CDOs). CDO issuance in September totaled 26.9 trillion won (about $20 billion), up 28.4% from the previous month, with time deposit securitization accounting for 21.7 trillion won (about $16 billion) of that amount.

Time deposit securitization has climbed sharply from 14.3 trillion won (about $11 billion) in July and 17.5 trillion won (about $13 billion) in August to 21.7 trillion won (about $16 billion) in September. The trend is closely tied to market rate movements. Government bond and bank bond yields have jumped in the wake of recent base rate hikes. As a result, banks have turned away from issuing new bank bonds, which carry heavier interest burdens, and instead moved to secure deposits through deposit-based short-term securitization, which offers relatively lower rates and cheaper funding costs.

Loan receivables securitization totaled 2.9 trillion won (about $2.1 billion) from issuers including Korea Zinc, Hanon Systems and Hanwha. Other deals included hybrid capital securities securitization by Kolon Industries and others (498.2 billion won (about $368 million)) and current account check securitization by SK Energy, Hyundai Engineering and others (486 billion won (about $359 million)). In contrast, trade receivables securitization fell 16.4% from the previous month to 4.9 trillion won (about $3.6 billion).

Construction companies are also using the PF securitization market as a primary funding channel rather than the plain corporate bond market. PF loan securitization volume in September rose 10.0% from the previous month to 7.4 trillion won (about $5.5 billion).

The most notable development is the sharp expansion in securitization volume where construction companies directly provide credit enhancement. By credit enhancement provider, construction companies accounted for more than half of September issuance at 3.9 trillion won (about $2.9 billion), followed by financial institutions (3.1 trillion won (about $2.3 billion)) and others (414.9 billion won (about $306 million)). Among major builders, Hyundai Engineering & Construction led with 1.3 trillion won (about $959 million), followed by Hyundai Engineering (811.7 billion won (about $599 million)) and I'Park HDC Development (319.2 billion won (about $236 million)).

This trend reflects construction companies' preference for PF securitization, which allows risk to be isolated at the project level, over raising funds from investors in the public corporate bond market. Plain corporate bonds require the entire construction industry slump and unsold housing risk to be assessed, while short-term PF securitization backed by the credit of sound builders can lower funding costs.

While corporate and bank funding demand is tilting toward the short-term securitization market, the supply-demand conditions in the short-term money market that must absorb it are becoming increasingly tight.

Korea Investors Service assessed that asset-backed commercial paper (ABCP) yields remained stable in September, helped by inflows into MMFs as stock market volatility increased early in the month. That means short-term funds are still circulating in the market and holding back rate increases for now.

But market experts see a high probability that short-term money market supply-demand conditions will worsen. Successive base rate hikes and short-term rates that remain relatively low compared with long-term rates are keeping funding demand concentrated in the short-term market. At the same time, rising deposit rates are strengthening investors' preference for deposits, so demand for MMFs, a key source of short-term funds, is expected to decline structurally.

If funding demand overflows while the supply of funds to absorb it shrinks, short-term rate increases will be hard to avoid. Should upward pressure on short-term rates materialize in earnest, banks and construction companies that are rolling over short-term funding through time deposit and PF securitization are likely to face heavier cost burdens as well. In the fourth quarter, when year-end funding demand converges, MMF fund flows and short-term rate trends will be key indicators determining the refinancing success of companies that chose ABS funding.

(Dollar figures are approximate, converted automatically at 1,000 won = $0.738, the rate on Nov. 9, 2026.)

※ This article is an AI translation of the Korean original published by Korea Credit News; it was checked by automated quality guards and published by the English edition desk.