KB Asset Management Launches Korea's First Ultra-Short-Term Policy Bank Bond ETF

KB Asset Management announced on June 23 that it will introduce the first exchange-traded fund (ETF) in Korea to invest in ultra-short-term 'AAA' rated bonds issued by policy banks.

The 'RISE Short-Term Policy Bank Bond Active ETF', which will be listed on June 24, primarily invests in bonds issued by Korea's three major policy banks: Korea Development Bank, Export-Import Bank of Korea, and Industrial Bank of Korea.

These bonds are issued by policy banks in which the government is the largest shareholder, and they are legally eligible for loss compensation. They are considered to have stability equivalent to government bonds due to their highest credit rating (AAA). In addition, they are expected to provide an average additional interest income of 0.2 percentage points compared to government bonds.

As of last year, the new issuance volume of policy bank bonds was approximately 125 trillion won, accounting for about 58% of the entire policy bond market. As an asset class with both high liquidity and stability, they are regarded as a competitive alternative to existing short-term interest rate products such as money market funds (MMF), certificates of deposit (CD), and Korea Overnight Financing Rate (KOFR).

For the RISE Short-Term Policy Bank Bond Active ETF, the risk-weighted asset (RWA) is classified as 0%, so it does not affect the capital adequacy indicators (such as BIS and RBC) of financial institutions like banks and insurance companies, making it efficient for managing reserve funds.

KB Asset Management has structured the RISE Short-Term Policy Bank Bond Active ETF to focus on ultra-short-term bonds, allowing it to be used as a 'parking-type ETF' specialized for temporary idle funds or short-term liquidity management. Its average duration is about 0.25 years, which minimizes the risk of valuation losses due to interest rate fluctuations.

No Areum, Head of the ETF Business Division at KB Asset Management, explained, "Amid growing uncertainty in global financial markets due to recent military clashes between the United States and Iran, there is increasing demand for investments that consider both short-term liquidity and risk management." She added, "The RISE Short-Term Policy Bank Bond Active ETF can be an efficient solution that offers both government bond-level stability and higher profitability than government bonds."