This article was published on July 19, 2026, at 2:50 p.m. on Signal, the capital market compass.
The credit spread — the gap between yields on three-year treasury bonds and AA- rated corporate bonds — recently widened to more than 70 basis points (1bp=0.01 percentage point). Analysts say the widening reflects weak demand for corporate bonds, as market rates face upward pressure and the "money move" toward the stock market continues.
According to the Korea Financial Investment Association on the 19th, the credit spread stood at 70.5bp as of the 15th of this month. This exceeds the 68.4bp recorded at the end of 2024, marking the first time in about 2 years and 5 months that the spread has entered the 70bp range. The move is attributed to a decline in corporate bond issuance after the credit spread began widening in May this year amid rate uncertainty.
Securities analysts cite weak corporate bond demand as the cause of the widening credit spread. Even as the wider spread makes corporate bonds more attractively priced relative to treasury bonds, the recovery in buying has been slow. Analysts say that although volatility in treasury bond yields has decreased, uncertainty over base rate hikes and the terminal rate level remains, preventing institutions from actively taking on credit bonds. With market rate levels rising and investor sentiment toward corporate bonds deteriorating, it has become difficult to find companies willing to issue.
Differentiation by rating also continues amid the corporate bond issuance cliff. Kiwoom Securities, which recently conducted a demand forecast for a corporate bond issuance, raised more than four times its target amount. However, the spread was set at a level similar to the fair market yield (the company's specific yield assessed by private bond valuation firms). Kiwoom Securities' corporate bond credit rating is AA0, classified as prime.
Hanjin (credit rating BBB+), the first non-prime bond to appear in the market since the JoongAng Group liquidity crisis, saw undersubscription in some maturity structures (tranches). Specifically, the one-year tranche drew 19 billion won in bids against a 20 billion won offering, while the 18-month tranche drew 25 billion won against a 20 billion won offering. In particular, the one-year tranche filled its target amount at a level 50bp higher than the fair market yield. Since bond prices and yields move in opposite directions, the rise in yield is interpreted as a sign of low investment demand for the bond.
For non-prime bonds in particular, investment demand is formed mainly around retail, so the recent deterioration in corporate bond sentiment appears to have dealt a direct blow. "Non-prime bonds usually have demand concentrated in retail," an official in the investment banking (IB) industry said. "The fact that investors' funds are still flowing into the stock market is also having a negative impact."
