[Edaily Marketin KIM YEON-SEO Reporter] A clear trend of net redemptions—where redemptions exceeded new issuances—emerged in the corporate bond market during the first half of the year. With the total volume of corporate bond issuance falling by more than 17% year-over-year, new funds were concentrated solely in investment-grade corporate bonds. As market contraction and polarization across credit ratings occur simultaneously, concerns are growing that funding conditions for non-investment-grade companies are becoming structurally tighter.

According to BondWeb on the 13th, the net issuance of corporate bonds (combined public and private offerings) for the first half of this year stood at minus (-) 4.9287 trillion won. Net issuance is calculated by subtracting redemptions from issuance amounts, meaning that more funds flowed out of the corporate bond market—primarily through maturity redemptions—than were newly injected.

The overall size of the issuance market also shrank significantly. Corporate bond issuance in the first half of this year totaled 46.6594 trillion won, a 17.4% decrease from 56.4950 trillion won in the same period last year. This is attributed to a combination of interest rate volatility, concerns over an economic slowdown, and rising credit risks, which have led companies to reduce issuance and investors to adopt a more conservative investment stance.

The problem is that, even within this shrinking market, funds are flowing exclusively into top-rated corporate bonds. The issuance volume of AAA-rated corporate bonds—considered top-tier—increased by 4.6%, from 10.12 trillion won in the first half of last year to 10.59 trillion won in the first half of this year. This means that while the overall issuance market contracted, AAA-rated corporate bonds were the only segment to experience exceptional growth. This is interpreted as a result of institutional investors structuring their portfolios around highly stable bonds as uncertainty has grown.

In contrast, a sharp decline in issuance was evident for bonds rated A or lower. The cumulative issuance amount of “A-” rated corporate bonds fell by 48.8%, from 1.29 trillion won in the first half of last year to 660 billion won this year. The cumulative issuance amount of “BBB+” rated corporate bonds also decreased by 60.9%, from 665 billion won last year to 260 billion won this year. As investment demand in the corporate bond market has concentrated on higher-rated issues, the space for mid- and lower-rated companies in the issuance market has rapidly shrunk.

The credit industry views this trend as potentially leading to a polarization in funding—going beyond a mere slump in issuance. This is because while high-quality companies can raise market-based funds relatively stably, non-investment-grade companies are increasingly likely to reduce their issuance volumes or rely on alternative funding sources such as bank loans and short-term financing.

A bond market official stated, “With the corporate bond market shifting to net redemptions, if investment demand is concentrated on the highest-rated issues, issuance conditions for lower-rated companies will inevitably become more difficult,” adding, “It is highly likely that this differentiation based on credit ratings will continue into the second half of the year.”