Long-Term Bond ETFs Popular Among Individual Investors in Korea

Domestic Long-Term Bond ETF Individual Net Purchases Total 190 Billion KRW Since Early Year
'KBSTAR KIS Gukgochae 30-Year Enhanced ETF' Tops Individual Net Purchases (82.4 Billion KRW)

As expectations grow that U.S. interest rates have peaked, a significant amount of capital is flowing into U.S. long-term bond ETFs. Similarly, in South Korea, long-term bond ETFs are gaining popularity among individual investors amid hopes that the benchmark interest rate will stabilize at a lower level.

Since the beginning of the year, net purchases by individuals in the domestic long-term bond (duration over 10 years) ETF market have reached a total of 190 billion KRW.

Although long-term bond ETFs have underperformed in the past month due to a rebound in interest rates, individual investors aiming for future rate declines are steadily increasing their net purchases by buying at low points.

While bonds were traditionally regarded solely as safe assets, the recent expansion of ETF lineups has attracted many individual investors seeking high returns through bond investments.

In particular, with the increase of volatile long-term bond ETFs, bonds?once the exclusive domain of institutional investors?have rapidly emerged as an attractive investment tool for individual investors.

The domestic long-term bond ETF that has attracted the most individual capital is the ‘KBSTAR KIS Gukgochae 30-year Enhanced ETF,’ which has drawn 82.4 billion KRW since the beginning of the year.

The ‘KBSTAR KIS Gukgochae 30-year Enhanced ETF’ tracks the daily returns of the KIS Gukgochae 30-year Enhanced Index at a 1x leverage. With a duration of 24.78 years, this long-duration bond ETF offers the potential for significant capital gains when interest rates decline.

Geum Jeongseop, Head of ETF Marketing at KB Asset Management, explained, “As the theory of interest rates peaking gains traction, individual buying is concentrating on the 30-year long-term bond ETF with the longest duration. Since long-term bond ETFs can yield relatively higher capital gains when rates fall but also exhibit high volatility, we recommend a strategy of phased buying.”

Meanwhile, in February, KB Asset Management launched the country’s first ‘KBSTAR Gukchae 30-year Leverage KAP (Synthetic) ETF,’ which tracks twice the yield of the 30-year government bond. With a duration of 38.5 years, it has the longest duration among domestic bond ETFs, allowing the most aggressive investment in falling interest rates.