[Edaily Marketin KIM YEON-SEO Reporter] As the domestic stock market continues to plummet day after day, the preference for safe-haven assets is growing across the financial market as a whole. With corporate bond yields now following government bond yields into a downward trend, all eyes are on whether the corporate bond market—which struggled in the first half of the year due to rising interest rates and a slump in investor sentiment—will find an opportunity to recover.

According to BondWeb on the 30th, the yield on 3-year corporate bonds with an “AA-” credit rating closed at 4.46% per annum today. The yield, which had surged to 4.65% per annum on the 24th, has fallen for four consecutive trading days this week, dropping by approximately 20 basis points (1 bp = 0.01 percentage point).

The yield on 3-year government bonds also rose to 3.95% per annum on the 24th before falling for three consecutive trading days from the 27th to the 29th. Although it closed at 3.82% per annum on this day—up 2 basis points from the previous trading day—it remains 13 basis points lower than last week’s high. When bond yields fall, bond prices rise. With yields on both government and corporate bonds falling in tandem recently, the bond market has effectively shown strength.

Credit spreads, which serve as a gauge of investor sentiment toward corporate bonds, also narrowed slightly. The credit spread—the difference in yields between 3-year government bonds and 3-year “AA-” rated corporate bonds—narrowed by 0.6 basis points, from 71.1 basis points on the 27th to 70.5 basis points today. This indicates that the recent trend of rapid widening has somewhat subsided, suggesting that investor sentiment may be stabilizing.

However, some analysts note that it is still too early to conclude that a full-fledged recovery is underway. The credit spread has widened by approximately 18 basis points from 52.4 basis points on January 2, the first trading day of the year. Although corporate bond yields themselves have fallen, the credit risk premium—the additional yield relative to government bonds—remains at a high level.

Recently, the domestic stock market has been undergoing a sharp correction, led by semiconductor stocks. As the sharp decline in the KOSPI has weakened the appetite for risky assets, the investment appeal of bonds—which are considered relatively safe assets—is coming to the fore. Analysts also note that the decline in the won-dollar exchange rate, which has eased concerns about foreign capital outflows, has contributed to the stabilization of bond yields.

The market is paying close attention to the possibility that the bond market’s strength could lead to a recovery in corporate bond investment sentiment. In the first half of this year, the corporate bond market struggled due to a sharp rise in yields, widening credit spreads, and unsold issues from some non-investment-grade issuers. Companies have also been delaying issuance or reducing the scale of their fundraising in light of higher financing costs and uncertain investment demand.

Compounded by the summer off-season, the August schedule for corporate bond bookbuilding is virtually empty. However, there are expectations that if interest rates continue to fall, companies that had postponed issuances may resume their funding plans. Given that supply pressures are not significant, there is also speculation that investment demand could recover first, particularly for high-quality credit instruments and short-term bonds.

Lee Hwa-jin, an analyst at Hyundai Motor Securities, noted, “Amid the financial market panic that triggered circuit breakers for two consecutive days, the bond market has turned bullish,” adding, “The yield on the 3-year government bond, which had exceeded 3.9% last week, has stabilized at around 3.7%.”

She continued, “Clear differentiation is emerging in the corporate bond issuance market,” noting, “Credit spreads have leveled off after hitting annual highs, and a bullish trend is emerging, particularly in short-term bonds.”