[Edaily Marketin Reporter LEE GEON-EOM ] As uncertainty in the corporate bond market grows, so-called “split-rated” bonds—those with differing ratings from different credit rating agencies—are being thoroughly shunned by the market. With split-rated issuances virtually disappearing except for those near the boundary between investment-grade and non-investment-grade, it is believed that niche investors who were willing to take on the risk of lower-rated bonds in pursuit of relatively higher yields have vanished.

According to the Financial Supervisory Service’s electronic disclosure system on the 14th, the total issuance volume of publicly offered corporate bonds in the multiple credit rating (split) range for the first half of this year was 410.7 billion won, a sharp 74.4% decline from 1.606 trillion won in the same period last year.

Specifically, issuance in the “AA–AA+” split—which reached 1.14 trillion won in the first half of last year—was nonexistent in the first half of this year, while issuance in the “BBB–BBB+” split (77 billion won → 0 won) and the “A–A” split (40 billion won → 0 won) also vanished entirely. Only the issuance volume of “A+–AA–” splits increased by 31.4%, from 200 billion won to 262.7 billion won, while “A–A+” splits remained at a similar level to the same period last year (149 billion won), at 148 billion won.

A credit rating split refers to a situation where Korea Ratings Corporation ( Korea Ratings Corporation(034950)), Korea Credit Rating (Han Shin Pyeong), and NICEHoldings (Na Shin Pyeong) assign different ratings to the same company due to divergent assessments of its creditworthiness. This indicates that even among experts, there are differing views regarding the company’s financial soundness or future outlook.

In a typical corporate bond market—particularly when liquidity is abundant and risk appetite is high—split-rated bonds can serve as niche investment opportunities for investors. This is because investors can earn higher interest rates (yields) based on the higher rating, even while accepting some of the risk associated with the lower rating.

On the other hand, in a period of uncertainty—such as the current one, where corporate bond yields are soaring and credit events like the defaults of JR GLOBAL REIT and the Joongang Group are occurring in quick succession—split ratings are perceived by investors as a critical “red flag.”

In such situations, when disagreements arise among credit rating agencies, investors tend to either adopt a strictly conservative approach by using the lower rating as their benchmark or exclude such bonds entirely from consideration. Ultimately, it appears that even the slightest discrepancy in a company’s creditworthiness causes investor demand—which would otherwise tolerate such disagreements and uncertainty—to vanish from the market altogether.

Amid this complete disregard from investors, the only bonds that managed to survive were “split” bonds—those situated near the boundary between investment-grade and near-investment-grade ratings. This has led to the interpretation that investors have strictly drawn their psychological “last line of defense” for risk tolerance at around “AA-.” The explanation is that market participation has shrunk so drastically that split issuances do not occur at all once a bond falls outside the A to AA- range.

A corporate bond portfolio manager at an asset management firm stated, “The very existence of disagreements among credit rating agencies signifies uncertainty, and the current market has neither the capacity nor the willingness to pay a premium for that uncertainty.” He added, “The disappearance of split-rated bonds ultimately means that investor demand to shoulder the risks associated with ambiguous ratings has dried up.”

He added, “In the current environment, where even the smallest factors can make or break a bookbuilding process, companies facing conflicting credit ratings are likely to hesitate even more about entering the public offering market.”