Anxious Market... Strengthening Concentration in Bond ETFs

KODEX KOFR Interest Rate Active Fund Inflows Surge
June ETF Net Inflows Top 1-4 Short-Term Bonds
Mid-Long Term Bonds Enter Top 10
Inflation Peak Expected Before May CPI Release
Fund Movement May Change After June 15 FOMC (Local Time)

[Asia Economy Reporter Hwang Yoon-joo] Funds invested in domestic exchange-traded funds (ETFs) are also shifting toward risk aversion.

According to the Korea Exchange on the 14th, the top four ETFs by net inflow in June (from the 1st to the 13th) were short-term bond (interest rate) products. Compared to last month, the concentration in bonds has intensified.

The ETF with the highest fund inflow was the KODEX KOFR Interest Rate Active (Synthetic) ETF, which attracted 199.3 billion KRW. 'KOFR Interest Rate' can be understood as ultra-short-term bonds. Following were TIGER Short-term Bond Active (181.3 billion KRW), TIGER Short-term Treasury Bonds (99.8 billion KRW), and KBSTAR 5-Year Treasury Futures Tracking (69.9 billion KRW).

Among the top 10 ETFs by fund inflow in May, four were bonds (interest rate), but in June, this increased to six. Narrowing down to the top five, three were bonds in May, and four in June. Park Eun-seok, a researcher at Hanwha Investment & Securities, explained, "It is appropriate to interpret this as an increase in risk asset avoidance sentiment," adding, "The increase in fund inflows mainly into short-term bond ETFs is to reduce the impact of interest rate hikes."

During periods of rising interest rates, funds tend to flow into short-term bonds with shorter durations (bond recovery periods). In particular, the 'KODEX KOFR Interest Rate Active ETF' has almost no duration, so even if the base interest rate rises, there is no valuation loss, and rather, it can generate profits when the base rate increases, which explains why institutional funds are flocking to it.

It is also notable that funds flowed into the 'KBSTAR 5-Year Treasury Futures Tracking ETF' and the 'KOSEF 10-Year Treasury Bond ETF' in June. In May, all of the top 10 products were short-term bonds.

Jang Geun-hyun, a research fellow at the Korea Capital Market Institute, explained, "Until the release of the US May Consumer Price Index (CPI) last week, expectations of the inflation peak and recognition of the interest rate peak increased, leading to demand for funds in medium- to long-term government bonds," adding, "After the CPI release, inflation expectations were disappointed, causing increased market volatility."

Researcher Jang said, "The market is currently directionless. Depending on the FOMC situation scheduled for the 15th (local time), funds may move into long-term bonds, but if interest rates jump, they may exit."

This content was produced with the assistance of AI translation services.