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By Anna J. Park

The local corporate bond market is expected to continue showing signs of polarization this year, amid sluggish economic growth and high-interest rates, data showed Monday.

According to data compiled by financial information portal Yonhap Infomax, the total amount of AAA-grade corporate bonds issued last year stood at 12.3 trillion won ($9.88 billion), which is an increase of about four percent from the previous year's 11.9 trillion won.

However, the aggregated amount of the issuance of corporate bonds with credit ratings lower than the AAA grade in 2022 was about 40 percent lower than the previous year.

Analysts say last year's faster-than-expected rise of interest rates and the ensuing shortage of market liquidity are behind the drastically reduced amount of corporate bonds issued from most companies with ratings lower than the top echelon.

"Despite deteriorated market conditions, AAA-rated companies could afford to issue issuing corporate bonds with higher interest rates, while lower-rated companies missed the optimal timing to issue bonds," Kim Sang-man, an analyst at Hana Securities, pointed out.

The real concern is that this polarized pattern in the local corporate bonds market is expected to continue this year as well. Seemingly, corporate bonds markets are functioning normally, as companies succeed in issuing bonds with interest rates lower than the peak recorded during the second half of last year.

Yet, if looking at the picture closely, the companies that enjoyed high demand from institutional investors in their book-building process, are mostly top-rated ones.

For instance, during the first week of January, four companies ― KT, Emart, POSCO, and LG Uplus ― attracted a total of 11.8 trillion won from institutional investors in their book-building process for their 970 billion won worth of corporate bonds. AAA-rated KT drew nearly three trillion won, while POSCO, with an AA+ rating, also attracted nearly four trillion won in demand from institutional investors. Emart and LG Uplus, each attracting trillions of won, are both AA rated.

While these top-rated companies fill the needs of institutional investors from early this year, lower-graded companies' bonds are expected to be left even further behind as they face investors' lowered needs for injecting money.

"The polarization between top-rated corporate bonds and speculative-grade bonds will worsen this year, due to the differences in their capacities to respond to high-interest rates," Ahn So-young, an analyst at Hanwha Investment & Securities, said.