[Edaily Marketin KIM YEON-SEO Reporter] As rising interest rates increase the burden of corporate bond financing, companies continue to scale back new issuances. In particular, the contraction in the subprime bond market—which has a relatively weak investor base—is particularly noticeable.

According to BondWeb on the 18th, the total amount of non-investment-grade bonds issued in the public and private markets from the beginning of this year through that day totaled 7.13 trillion won. This represents a 42.1% decrease compared to the 12.313 trillion won issued during the same period last year.

By rating, corporate bonds rated ‘A-’ to ‘A+’ totaled 6.393 trillion won, accounting for the majority of sub-investment-grade bond issuance. However, this represents a 43.8% decrease compared to the 11.368 trillion won issued during the same period last year. Issuance of bonds rated BBB or lower fell by 50.1%, from 945 billion won last year to 472 billion won this year, effectively halving.

In the domestic bond market, non-investment-grade bonds generally refer to corporate bonds with credit ratings of “A+” or lower. The “A” grade is subdivided into “A+,” “A0,” and “A-,” while the “BBB” grade below that is the lowest tier within the investment-grade category. While bonds rated up to BBB are technically investment-grade, they are classified as non-investment-grade due to their higher credit risk compared to investment-grade bonds. Bonds rated ‘BB+’ or below are classified as speculative-grade or high-yield bonds, where the uncertainty surrounding principal and interest repayment is relatively high.

The recent decline in sub-investment-grade bond issuance is interpreted as the result of a combination of rising corporate bond yields and shrinking investment demand. Rather than refinancing maturing corporate bonds by issuing new ones, companies are utilizing cash on hand or diversifying their funding sources through bank loans, commercial paper (CP), and mezzanine financing.

In particular, non-investment-grade companies have a narrower base of institutional investors willing to purchase their corporate bonds compared to investment-grade companies. When market interest rates rise, the credit spread—which reflects credit risk—also widens, causing actual financing costs to climb even more steeply. This is why companies are opting for alternative financing methods or repaying existing debt rather than issuing corporate bonds and bearing the interest burden.

The market expects the decline in issuance to continue until the interest rate burden eases and demand for non-investment-grade bonds recovers. A bond market official stated, “Following credit events involving JR Global REIT and JTBC, caution toward non-investment-grade bonds has significantly increased, particularly among retail investors,” adding, “Unless both the interest rate burden and the downturn in investor sentiment ease simultaneously, the decline in issuance by non-investment-grade companies will likely continue for the time being.”