[Practical Investment] The Right Time for 'Bond ETF Investment' Has Come

[Asia Economy Reporter Junho Hwang] If direct investment in bonds is difficult and complicated, the easiest way is to subscribe to exchange-traded funds (ETFs) or public funds. Those who have already invested in indirect bond products have suffered losses to the extent of questioning whether they are truly safe assets. However, for new investors, this could be an opportunity for bargain buying. Bond experts advise that when investing in bond products, it is more advantageous to make steady diversified investments until the end of the year rather than investing a large amount at once.

Following the United States, South Korea has also clearly adopted a stance to tackle inflation. On the 13th, the Bank of Korea raised the base interest rate by 0.50 percentage points to 2.25% through the Monetary Policy Committee. Daejun Kim, a researcher at Korea Investment & Securities, analyzed, "This Monetary Policy Committee was overall hawkish," adding, "They actively responded to prevent a vicious cycle where inflation and wage increases could occur consecutively." The Bank of Korea's proactive measures have laid the groundwork to support the theory of an inflation peak in August. Passing the inflation peak can predict a cycle of falling market interest rates and rising bond prices.

If the inflation peak appears, the gap between the base interest rate and market interest rates is likely to close quickly. From June 2011, the Bank of Korea raised the base interest rate five times, increasing it to 3.25%, and inflation peaked after about three hikes. Subsequently, market interest rates rapidly fell to the level of the base interest rate. Since a decline in market interest rates leads to price increases, the current moment can be seen as an opportunity for bargain buying.

Geunseop Geum, director at KB Asset Management, explained, "Since interest rates have risen rapidly in a short period, market interest rates already reflect the possibility of base rate hikes," adding, "Even if further rate hikes occur, the increase in market interest rates is expected to be limited, making this a good time to invest with a long-term perspective."

In this situation, indirect investment in bonds, especially through ETFs, has the advantage of easy trading with a small amount of capital. As of the end of last year, a total of 64 bond ETFs are listed domestically.

Among these products, those related to government bonds are worth noting. In the case of corporate bonds, the economic slowdown caused by rising interest rates may hit. Unless investing in high credit rating public bonds, it is wise to avoid corporate bonds for the time being. Among government bonds, long-term bonds are advantageous, and the 10-year bond yield can be stable.

A bond manager at an asset management company explained, "Assuming the 10-year government bond yield is 3.2% and it can generate 1.6% interest over the next six months, if inflation is controlled within the year and market interest rates fall by about 0.5% as in 2011, and the duration is 7 years, an additional return of about 3.5% can be earned," adding, "This makes it a product that can yield a total return of 5.1%."

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