[Edaily Marketin KIM YEON-SEO Reporter] Unrest in the credit market shows no signs of abating. This comes as investor sentiment toward corporate bonds has weakened due to concerns over interest rate hikes and geopolitical risks, compounded by JTBC’s failure to repay its securitization debt. There are concerns in the market that investor sentiment could be damaged not only in the BBB-rated segment but also in the A- and AA-rated issuance markets.

According to BondWeb on the 16th, the credit spread stood at 62.9 bp (basis points; 1 bp = 0.01 percentage point) that day. The credit spread, which stood at 52.5 bp on January 2 at the start of the year, has been steadily widening. The credit spread refers to the difference between the yield on a 3-year government bond and the yield on a 3-year “AA-” corporate bond. Typically, a widening spread is interpreted as a sign of weakening investor sentiment toward corporate bonds.

Several adverse factors have coincided to drive the recent widening of the spread. Geopolitical risks escalated in February due to the conflict between the U.S. and Iran, and subsequent concerns over interest rate hikes have dampened investor sentiment across the corporate bond market. Issuers have become reluctant to issue corporate bonds due to the increased interest rate burden, while investors are also becoming more selective in their credit investments.

On top of this, the issue of JTBC’s failure to repay its debt on the 12th appears to have shaken investor sentiment once again. Credit spreads, which stood at 61.1 basis points on the 11th, began to rise again after the issue of JTBC’s failure to repay its securitized debt surfaced on the 12th, widening slightly to 62.9 basis points that day. This is interpreted as the market reflecting concerns that the issue could spread beyond a single company’s liquidity problem to pose a credit risk for the Central Group as a whole.

The credit industry is paying close attention to the possibility that this crisis may not be confined to the BBB-rated corporate bond market. Given that investor sentiment toward non-investment-grade corporate bonds has already weakened, and a credit event has occurred involving a major conglomerate affiliate, analysts predict that funding conditions for issuers rated A or below could become even more difficult. Some even forecast that AA-rated issuers may not be immune to the impact of investors becoming more selective.

In particular, caution is growing regarding companies with an ‘A-’ rating. According to Shinhan Investment Securities, among companies currently holding an “A-” rating, those with a “negative” outlook include Yeocheon NCC, Moolim Paper, SK IET, Pulmuone Foods, and Shinhan Asset Trust. While these companies have no corporate bonds maturing within the year, analysts note that it is difficult to rule out the possibility of future rating downgrades if industry conditions remain sluggish and financial pressures persist.

Refinancing pressures in the second half of the year are also a key variable. The volume of corporate bonds maturing is projected as follows: △5.4116 trillion won in July, △2.8286 trillion won in August, △7.4162 trillion won in September, △6.0733 trillion won in October, △3.4675 trillion won in November, and △1.6547 trillion won in December. The total amount of corporate bonds maturing in the second half of the year amounts to 26.8519 trillion won. In particular, maturities are concentrated in September and October, leading the credit market to view this period as a major inflection point for the second half of the year.

With the shock of the Joongang Group crisis still fresh, the funding environment for the A-rated and lower markets could deteriorate further if additional credit events occur. This is because issuers are finding it difficult to issue corporate bonds while bearing high interest rates, and investors are likely to take a conservative approach toward issuers where risks have come to the fore.

A credit industry official stated, “The ripple effects of this crisis may differ from those of past individual credit events, such as those involving JR Global REIT, Homeplus, and Taeyoung Construction,” adding, “Since this is not just a problem with a single company but involves intertwined exposures among group affiliates and the financial sector, its impact on the market could be greater.”

The official continued, “Fundraising is likely to become significantly more difficult for companies rated from A- to BBB, and depending on the situation, investor sentiment could even be damaged in the AA-rated issuance market,” adding, “Investor sentiment toward BBB-rated issuers was already weak due to supply pressures and slowing demand, but the situation has become even more burdensome as the Joongang Group crisis has coincided with instability in the short-term money market.”