Last Month, 2.3 Trillion Won Net Outflow from Bond Funds... Largest Capital Withdrawal Since COVID-19

[Asia Economy Reporter Ji Yeon-jin] Due to the recent base interest rate hike, market interest rates have risen, leading to the largest outflow of funds from bond-type funds since the COVID-19 crisis last month.

According to the Korea Financial Investment Association on the 5th, the newly established amount in bond-type public funds, including exchange-traded funds (ETFs), was 1.7179 trillion won last month, while the redeemed amount was 4.067 trillion won, resulting in a net outflow of 2.3492 trillion won. This is the largest monthly net outflow since March last year (3.3765 trillion won), when the financial market was unstable due to COVID-19.

2.2257 trillion won was withdrawn from domestic bond-type public funds, and 123.5 billion won from overseas bond-type public funds. This is interpreted as a result of rising bond interest rates. An increase in interest rates means a decline in bond prices.

Due to the central bank's base interest rate hikes, inflation, and economic recovery, bond interest rates have shown a steady upward trend. Bond-type public funds have experienced fund outflows for six consecutive months: June (1.1568 trillion won), July (1.0853 trillion won), August (531.4 billion won), September (381 billion won), and October (88.5 billion won).

Future outlooks for the domestic bond market are mixed. Yeo So-min, a researcher at Eugene Investment & Securities, said, "The Korean economy is expected to continue a favorable recovery next year, but the strength of the recovery is expected to weaken compared to this year," adding, "In the past, when the pace of economic recovery slowed and base interest rates rose, market interest rates mostly declined."

On the other hand, Gong Dong-rak, a researcher at Daishin Securities, stated in the annual outlook report for next year, "Bond interest rates are expected to show more upward movement," predicting, "The start of tapering in the U.S. and the concretization of the base interest rate hike schedule are expected to be fully reflected in interest rate trends, and inflation will remain at a high level, highlighting upward pressure on interest rates throughout the year."