Banks ease SK Hynix swap terms as risk pressures fade

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SK Hynix swap costs fall

Highlights

SK Hynix swap spreads fell to 150-300 basis points over SOFR.
Some banks had charged more than 1,000 basis points in June.
SK Hynix shares recently jumped 12.73% to 1.691 million won.
Reduced leverage has eased concentration risks for banks.

Bank of America, Citigroup, Goldman Sachs, and JPMorgan are now quoting spreads of roughly 150 to 300 basis points over SOFR for swaps linked to SK Hynix Korean shares, Bloomberg reported. In mid-June, some banks were charging more than 1,000 basis points over SOFR or refusing new transactions altogether.

Banks ease limits after crowded AI trade unwinds

The shift reflects a major change in positioning. Earlier this year, strong demand for artificial intelligence exposure pushed investors into leveraged bets on SK Hynix, a key supplier of high-bandwidth memory used in AI systems.

The company's Korean shares had risen roughly elevenfold in the 12 months through June 22. That rally created problems for banks providing swaps. Their portfolios became increasingly concentrated in the same stock, raising financing and repo-market risks.

The situation changed after SK Hynix sold American depositary receipts in the U.S. last month. The listing created another route for investors seeking exposure to the company and reduced some pressure on Korean share swaps.

The July technology selloff also forced investors to cut leveraged positions. South Korea's Kospi dropped 22% during the month, its worst monthly decline since October 2008. SK Hynix and Samsung Electronics together account for almost half of the benchmark.

Despite that earlier rout, SK Hynix shares have rebounded sharply. According to the latest market data, the stock was trading at 1.691 million won, up 12.73%. The move shows that volatility remains high even as financing conditions improve.

Leveraged products shrink after selloff

The pullback in speculative positioning can also be seen in leveraged exchange-traded products. A Hong Kong-listed CSOP product designed to deliver leveraged exposure to SK Hynix had assets of just under $5 billion by Tuesday. That was less than one-third of its June 25 level.

Banks that previously rationed swap capacity are now seeking new business. Lower spreads suggest they see less risk in providing synthetic exposure to the stock.

What lower financing costs mean

Cheaper swaps could make leveraged SK Hynix positions more attractive again, particularly for funds that prefer synthetic exposure because of taxes, capital rules, or built-in leverage.

But the change does not mean volatility has disappeared. The sharp fall in leveraged products and the recent 12.73% stock rebound show how quickly positioning can reverse. For banks and investors, the main question is whether cheaper financing rebuilds another crowded AI trade or simply reflects healthier market liquidity.

We also reported SK Hynix unveils a $29 billion buyback after shares tumble.

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