'The Era of Individual Bond Investment' Doubles in 2 Years... FSC Improves Securities Firms' Sales Practices

Long-term Bonds and Government Bonds Popular... Securities Firms Strengthen Information on Transaction Prices and Costs

As bond yields surged sharply, the number of individual investors investing in bonds has noticeably increased, prompting the Financial Supervisory Service (FSS) to improve the sales practices of securities firms regarding bonds. Going forward, securities firms must directly provide investors with investment reference indicators such as the average market yield and clearly disclose the investment risks of long-term bonds and precautions when selling bonds before maturity.

According to the FSS on the 3rd, as of the end of May, the evaluated balance of bonds directly invested by individual investors reached 45.8 trillion won, approximately doubling compared to 23.6 trillion won at the end of 2021. Sales were mainly conducted offline (77.2%) rather than online, centered on investors aged 60 and above (51.5%). Reviewing the bonds directly invested this year, domestic bond over-the-counter (OTC) trades accounted for the majority (83.5%), followed by overseas bond OTC trades (8.3%) and domestic bond exchange trades (8.2%). Previously, the majority of OTC bond trades were asset-backed securities electronic bonds (ABSTB), but recently, trades have increased mainly in long-term bonds and government bonds. The proportion of long-term bond trades rose from 3.4% in 2021 to 18.1% as of the end of May this year, and government bond trades increased from 0.6% to 22.2% during the same period.

The FSS analyzed that the recent sharp rise in bond yields, increased volatility, and weak stock market have led to increased demand for bond investments. In response to the surge in direct bond investments by individual investors, the FSS announced plans to revise regulations related to bond investment solicitation to improve securities firms' sales practices, ensuring investors clearly understand bond investment risks and transaction costs.

According to the improvement plan, securities firms must provide individual investors with detailed information such as bond average market yields (the average yield assessed by private bond evaluators), prices, and transaction costs to help assess the appropriateness of transaction prices when selling bonds. They must also inform investors that the prices of bonds with longer maturities are more sensitive to market interest rate fluctuations. Through key explanatory documents, firms are required to notify investors of the possibility of losses due to interest rate changes and the potential difficulty of selling bonds before maturity.

To this end, the FSS plans to revise the 'Standard Investment Solicitation Code of Conduct' for financial investment businesses. The FSS stated, "With the expansion of interest rate volatility, demand for bond investments is expected to continue increasing," and added, "We will closely monitor the bond investment status of individual investors."