[Click eStock] "Individual Won Bonds Reach 50 Trillion Won Era... Balance Up About 5 Times in 2 Years"

Hi Investment & Securities announced on the 2nd that "individuals' interest in Korean won bonds is at an all-time high," with the total holdings of individual Korean won bonds surpassing a record-breaking 50 trillion won.

On the same day, Myungshil Kim, a researcher at Hi Investment & Securities, stated, "Last year, the net investment in Korean won bonds by individuals reached 21.7 trillion won. This year, an additional 4 trillion won has flowed in, pushing the total holdings of individual investors in Korean won bonds above 50 trillion won as of the end of last month." Before 2022, individual holdings of Korean won bonds remained below 10 trillion won, but the investment scale has nearly quintupled in just two years.

Researcher Kim analyzed the background of the bond investment boom, saying, "The overall rise in bond yields due to the base interest rate hikes has increased investment attractiveness, and the need for stable portfolio construction amid aging has also grown. Additionally, the activation of digital platforms such as Mobile Trading Systems (MTS) has made bond investing easier."

When examining the yield to maturity (YTM) and duration (bond recovery period) of individual Korean won bond holdings by period, the average YTM and duration within individual holdings from 2022 to 2023 showed a significant increase in YTM compared to 2019 to 2021. Conversely, duration relatively decreased. Researcher Kim noted, "In the past, the bond investment yield structure consisted of 'low yields (low interest rates) and long maturities,' but since 2022, bond demand has shifted to 'high yields (high interest rates) and short maturities.' This has led to a rapid increase in individual bond purchases."

He added, "However, this year, YTM yields have decreased compared to 2022-2023, and a shift toward replacing these with longer maturities has appeared. Since this year, interest rates across all government bond segments have consistently remained below the base rate of 3.50%, leading to an increased preference among individual investors for extending duration to secure high carry (holding gains) in bonds."

Looking at bonds with cumulative holdings exceeding 100 billion won, the most preferred individual bonds in the government bond market were ultra-long-term bonds with maturities of 20 to 30 years. Preferred bonds outside government bonds included bank bonds and corporate bonds rated AA- to AAA with maturities around one year. In the government bond market, ultra-long-term bonds with relatively high carry yields were favored, while in the credit market, financial institutions' perpetual bonds, hybrid capital securities, and high-grade corporate bonds with maturities under one year, which offer high carry yields, were preferred. This suggests a preference for stability through holding to maturity rather than high interest income or capital gains.

Meanwhile, from January to March, individual bond preferences in government bonds concentrated on ultra-long maturities of over 30 years. Researcher Kim said, "For bonds outside government bonds, net purchases tended to increase only in the short-term segment of less than one year." He added, "Interestingly, after the March Federal Open Market Committee (FOMC) event, which was a major event in the bond market, and as confidence in a rate cut in June spread, individual bond investments focused on bonds with maturities of 1 to 2 years and purchase yields ranging from 3.4% to 5.6%, such as cards, capital, and corporate bonds." Representative examples include Kiwoom Capital (A-, 5.55%, March 25, 2025), Aequan Capital (A0, 5.58%, April 25, 2025), both rated A- to A0, and GS Construction (A0, 3.77%, April 16, 2024). As the government introduced measures to ensure a smooth landing of the real estate project financing (PF) market, it is presumed that investment sentiment in related sectors partially recovered due to the judgment that "there is little chance of a sudden credit crunch event triggered by PF."

Currently, the interest rates on fixed deposits at commercial banks stand at 3.06% for six months and 3.14% for 12 months. In contrast, government bonds with maturities over 20 years yield between 3.3% and 3.4%. Researcher Kim said, "There is also the advantage of capital gains from duration effects when interest rates decline in the future. Considering the stability and relatively higher yields compared to fixed deposits, individual preferences for ultra-long-term government bonds are bound to continue." He added, "Especially after experiencing the high interest rates and high yields of Korea Electric Power Corporation (KEPCO) bonds last year, individuals' expected returns on bond investments have clearly increased. Going forward, individuals are expected to respond to the market with more aggressive bets such as duration extension."

On the other hand, some changes are expected in investment preferences for credit bonds. The spread of AA- rated 3-year corporate bonds, considered a stable segment, has narrowed to the high 50 basis points (bp) range compared to government bonds of the same maturity, entering a level burden zone along with reduced carry returns. Even if spreads narrow further, the extent is expected to be limited. Researcher Kim predicted, "Considering that one of the purposes of individual bond investments is high interest income, preferences for bonds outside government bonds with maturities under six months and A-grade bonds may increase. However, segments with longer maturities or higher ratings may lose relative attractiveness."

Additionally, Researcher Kim stated, "There is no investment asset that is forever safe, but from a regulatory perspective, individual investment government bonds that enjoy tax benefits and interest incentives, hybrid capital securities of financial institutions with low default risk but long duration that can secure interest rate merits, and ultra-short-term credit bonds that can earn high interest over a short period despite risks will be alternatives beyond deposits from the perspective of individuals' asset portfolios." He added, "The base of individual bond investments will further expand. It is also a time when additional supply of related products is necessary."