Rising volatility in the bond market triggered by the Middle East conflict is increasing funding pressure on credit card companies. Card bond yields have surpassed 4% per annum, raising concerns that the burden on mid-to-low credit borrowers using card loans could grow.
The yield on three-year AA+-rated card bonds stood at 4.080% on the 24th, according to financial industry sources. Card bond yields had surged to 4.166% the previous day, jumping 0.216 percentage points in a single day. This marks the first time card bond yields have exceeded 4% in two years and two months, since January 19, 2024 (4.002%).
Yields on bonds issued by specialized financial companies, which had been on an upward trend since late last year, saw increased volatility following U.S. and Israeli airstrikes on Iran. Card bond yields, which had remained in the 3.2–3.6% range early this year, surged sharply to 3.715% on the 3rd and 3.925% on the 9th after the outbreak of hostilities.
Rising card bond yields can drive up funding costs for card companies, potentially leading to lower profitability. Unlike banks, card companies cannot raise funds through deposits and savings accounts, making them heavily reliant on bond issuance.
Card companies are currently expanding card loan operations to defend profitability, which has brought down average card loan interest rates. However, concerns are growing that this sales push is focused on high-credit borrowers, potentially worsening access to funds for mid-to-low credit borrowers. According to the Credit Finance Association, the average card loan interest rate across eight full-service card companies stood at 13.38% at the end of February, down 0.24 percentage points from the previous month-end (13.62%). "Card companies have no choice but to focus on high-quality borrowers given profitability considerations," a card industry official said. "If bond yield increases continue, the lending threshold for mid-to-low credit borrowers could rise further."
