Aftermath of 'Big Step'... Institutions Shift to Ultra-Short-Term Bonds in May

Market Volatility ↑... Increased Preference for Safe Assets
Institutions Raise Proportion of Ultra-Short-Term Bonds
Long-Term Bonds Relatively Disadvantaged During Rate Hike Periods

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] As central banks around the world accelerate interest rate hikes, institutional funds are moving towards ultra-short-term bonds.

Institutional investors, who are the demand side of bonds, are also increasing their allocation to ultra-short-term bonds. According to the Korea Exchange, as of the 16th, two out of the top three funds with the highest inflows were ultra-short-term interest rate ETFs. The ETFs with the largest inflows were △TIGER CD Geumri Investment KIS (Synthetic) (203.2 billion KRW) △KODEX 200 (138.1 billion KRW) △KODEX KOFR Interest Rate Active (Synthetic) (100.1 billion KRW), in that order. This contrasts with last month's top inflows, where ‘KODEX Short-term Bond PLUS’ ranked first and ‘TIGER China Electric Vehicle SOLACTIVE’ ranked second.

This change is due to extreme recent market volatility. Both the US and domestic stock markets have been declining, leading to a contraction in risk asset investment sentiment.

Mirae Asset Global Investments’ ‘CD Geumri Investment KIS’ and Samsung Asset Management’s ‘KOFR Interest Rate Active (Synthetic)’ are similar products. Both are ultra-short-term bond products.

Looking at the returns of 'CD Geumri Investment KIS', they are approximately +0.15% (1 month), +0.36% (3 months), +0.68% (6 months). 'KOFR Interest Rate Active' was listed on the 26th of last month and does not yet have official returns, but is expected to be similar.

An asset management company official explained, "During periods of interest rate hikes, volatility increases and risk asset investment sentiment weakens," adding, "Long-term bond investments also tend to incur relatively larger losses, so institutional funds appear to be moving into ultra-short-term bond products."