[Edaily Marketin, Reporter Lee Geon-eom] The credit shock that has rocked the subprime bond market is now squeezing the corporate bond market as a whole. Analysts say that the successive bankruptcy filings by JR Global REIT and the Joongang Group are acting as a catalyst, pushing investor sentiment across the entire credit market to become extremely conservative—a trend that goes beyond the fundamental issues of individual companies.

Amid growing concerns that the instability stemming from the collapse of BBB-rated bonds could spread to the “A-” rating—effectively the minimum threshold for investment-grade status—a “perfect storm” warning is sounding for the corporate bond market as a whole in the second half of the year, compounded by persistently high interest rates and capital flight to the stock market.

According to BondWeb on the 16th, net corporate bond issuance from January of this year through the previous day stood at minus (-) 7.8578 trillion won, indicating a shift to net redemptions. Compared to the 12.8343 trillion won in net issuance recorded during the same period last year, this represents a reversal of more than 20 trillion won in just one year.

The fact that redemptions now exceed issuances means that companies are being pushed out of the corporate bond market rather than raising funds there. Analysts suggest that, as credit shocks at some companies intersect with macroeconomic uncertainties—including interest rate hikes—the corporate bond market itself is failing to function as a source of funding.

Market caution appears to be spreading rapidly from non-investment-grade bonds to higher-rated ones. On that day, the credit spread (the difference in yield between 3-year government bonds and 3-year AA- rated corporate bonds) stood at 62.9 basis points (1 bp = 0.01 percentage point). The spread, which stood at 52.5 basis points at the beginning of the year, has been steadily widening, with the upward trend accelerating since the 12th, when the issue of JTBC’s unpaid debt came to light.

This is interpreted as the market reflecting credit risks across the entire Joongang Group, going beyond the liquidity issues of a single company. It is assessed that the fallout is extending even to “A-” rated companies, as institutions have collectively readjusted their credit risk limits in the wake of the Joongang Group crisis.

For A-rated companies currently assigned a “negative” outlook by the three major credit rating agencies, there is growing consensus that a future downgrade cannot be ruled out if weak business conditions and financial pressures persist. Should these companies be downgraded to BBB-level, a flood of forced selling could occur all at once, inevitably fueling concerns that market volatility could reignite.

Refinancing pressures in the second half of the year are another variable. The total amount of corporate bonds maturing in the second half of the year amounts to 26.8519 trillion won. In particular, the market views September and October—when 10.4895 trillion won, or 39% of the total volume for the second half, comes due—as the critical turning point. With the shock of the Joongang Group crisis still fresh, a sense of caution is spreading that even the “A-” market cannot rest easy should additional credit events occur.

The safety net that companies could rely on has effectively collapsed. Policy support measures, such as the Credit Guarantee Fund’s Primary Collateralized Bond Obligations (P-CBO), have become nothing more than a pipe dream for companies whose financial conditions have already deteriorated, as they cannot meet the eligibility criteria. Critics point out that a structural paradox is emerging: the very companies on the brink of collapse—those most in need of support—are being excluded from the benefits of policy-based financing.

Even high-yield funds, which have long served as the last bastion of private-sector demand, are reported to have effectively halted the inclusion of non-investment-grade bonds following the Jungang Group crisis. The central bank also drew a line against direct intervention, stating, “We intervene only when market mechanisms fail to function.” With the safety nets provided by the three pillars—government policy, the private sector, and the central bank—all simultaneously shut down, companies see no way out other than to survive on their own.

A credit industry official stated, “The financing environment for independent ‘BBB’-rated companies without the backing of a major conglomerate is deteriorating to its worst level,” adding, “Unless they can demonstrate concrete self-rescue plans to the market—such as the sale of core assets or support from major shareholders—they will effectively be forced out of the bond market in the second half of the year.”