Net Individual Bond Purchases Surpass 6 Trillion... 'Standoff' with Powell

US Treasury Yields Surpass 4% Amid Prolonged Austerity Outlook
KOSPI Stagnates... High-Yield Other Financial Bonds Gain Popularity

So far this year, the net purchase volume of bonds by individuals has surpassed 6 trillion won. Amid forecasts of bond yields peaking and the KOSPI struggling to break above the 2500 level, it is interpreted that the preference for safe assets offering high interest rates remains strong.

According to the Korea Financial Investment Association on the 7th, from January 2 to March 6 this year, individuals net purchased bonds worth 6.2817 trillion won. Breaking it down, other financial bonds issued by card companies, securities firms, and capital companies accounted for 2.2111 trillion won, government bonds 1.843 trillion won, and corporate bonds 1.5913 trillion won. This is about seven times the net bond purchases by individuals (908.8 billion won) during the same period last year. Last year, investments were made in corporate bonds (816.3 billion won), other financial bonds (160.8 billion won), and government bonds (101.6 billion won) in that order. The increased demand for government bonds is attributed to the attractiveness of prices and yields following interest rate hikes.

Since last month, as expectations grew that the tightening stance might last longer than anticipated, market interest rates have turned upward. For example, the 3-year U.S. Treasury yield closed at 3.775% on March 1 but jumped to 4.634% on March 2. During the same period, the 10-year U.S. Treasury yield surged from 3.417% to 4.062%. Last week, Korean government bond yields also rose influenced by the sharp increase in U.S. Treasury yields. The 3-year and 10-year Korean government bonds rose by 23.6 basis points and 25.1 basis points from the previous week, reaching 3.79% and 3.77%, respectively. Kim Seong-su, a researcher at Hanwha Investment & Securities, explained, "Newly issued bonds have high coupon rates (interest yields), attracting investors," adding, "With a negative economic outlook and the market interest rate peak likely approaching soon, demand from individual investors has increased."

[Image source=Yonhap News]

Researcher Kim added, "The consumer price index being released lower than consensus is positive for the bond market, but important events that will influence the direction of interest rates remain," noting, "The Bank of Korea Governor Lee Chang-yong’s press conference with foreign journalists and Federal Reserve Chair Powell’s Senate hearing (on the 8th) will determine the direction of interest rates."

According to Statistics Korea, the consumer price index for February was 110.38 (2020=100), rising 4.8% year-on-year. This is lower than the expected 5.0%, which is positively evaluated by the bond market as it indicates a slowdown in inflationary pressure.

Although the stock market has risen since the beginning of the year, investor sentiment has not fully recovered. The KOSPI increased by 9.6%, from 2225.67 on January 2 to 2462.62 on March 6. However, the deposit money has been on a declining trend since the first trading day of the year (50.8339 trillion won). On March 3, deposits recorded 45.6465 trillion won, a 10.2% decrease compared to the beginning of the year and a 28.9% shrinkage compared to the same period last year (64.2629 trillion won).

This year’s trading volume increased by 50.8%, from 5.2001 trillion won at the beginning of the year to 7.8454 trillion won on March 3, but it still falls significantly short of last year’s figures. During the same period last year, trading volumes were 8.1939 trillion won and 10.592 trillion won (March 3), respectively.

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