Individuals Net Purchase of 9 Trillion Won in Bonds Over 3 Months... Fund Movement to Safe Assets

Purchased 3 Trillion Won Worth for 3 Consecutive Months
Up 86.9% Compared to Same Period Last Year
Money Flows into Safe Assets

[Asia Economy Reporter Hwang Yoon-joo] As the U.S. Federal Reserve (Fed) continues its high-intensity tightening, there is a strengthened trend of funds flowing into safe assets. Over the past three months, individual net bond purchases have exceeded 9 trillion won.

According to the Korea Financial Investment Association on the 5th, individual net bond purchases during the second half of the year (July to September) reached 9.1518 trillion won. This is an 86.9% increase compared to the same period last year (1.1945 trillion won).

Specifically, purchases amounted to 2.9977 trillion won in July, 3.0581 trillion won in August, and 3.096 trillion won in September. Last year, the total was about 1 trillion won, with 243.3 billion won in July, 569.6 billion won in August, and 381.6 billion won in September.

The influx of funds into the bond market is due to the tightening stance continuing more strongly than expected, causing extreme volatility in the stock market. As a result, funds are flowing into the bond market, where both principal and increased interest can be secured.

From March to September this year, when the U.S. began raising interest rates in earnest, the KOSPI and KOSDAQ indices fell by -20.14% and -23.66%, respectively. Samsung Electronics, the largest company by market capitalization on the KOSPI, dropped 26.35%, from 72,100 won to 53,100 won.

On the other hand, the yields on 1-year, 2-year, 3-year, and 10-year U.S. Treasury bonds were 1.815%, 2.372%, 2.663%, and 2.969% respectively at the end of March, rising to 3.382%, 4.203%, 4.186%, and 4.096% by the end of September. The Fed raised the benchmark interest rate by 0.75 percentage points three times in a row (May, July, September), causing bond yields to increase as well.

Bonds pay interest along with the principal at maturity, so there is no risk of principal loss. Treasury bonds are the most trusted among bonds, and even 'AAA' rated corporate bonds offer annual yields of 4-5%, comparable to deposits. Compared to deposits that require meeting various conditions to guarantee high interest rates, bonds have advantages. This is why individuals are turning their attention to the bond market.

Im Jae-gyun, a researcher at KB Securities, said, "Although bond prices fall when interest rates rise, at the current level (3-4% for 1, 2, and 3-year Treasury bonds), focusing on short-term bonds to capture high interest rates is profitable," adding, "While further increases in short-term bond yields are limited, long-term bond yields are expected to face downward pressure due to economic burdens."

Kim Ji-man, a researcher at Samsung Securities, stated, "If expectations for the peak benchmark interest rate rise to 3.5%, the 3-year Treasury bond yield will rise to around 4.2%," and added, "Any level beyond that is likely an overshoot, and buying low in mid- to short-term bonds is effective."