Deposit 'Exodus'... Long-term Government Bonds and Short-term Financial Bonds Gain Popularity

Record High Net Bond Purchases in April

[Image source=Yonhap News]

With the decline in market interest rates, idle funds from individual investors are leaving banks and making an 'exodus' to the stock and bond markets. Especially as countries around the world show signs of easing monetary tightening, attention to the bond market has increased more than ever, with individual investors increasing their investments in ultra-long-term government bonds or short-term financial bonds.

According to the Korea Federation of Banks on the 3rd, the one-year fixed deposit interest rates at the four major domestic banks (KB Kookmin, Shinhan, Hana, Woori) are all below the Bank of Korea's base rate (3.50%). Based on the highest preferential rates, KB Kookmin's 'KB Star Fixed Deposit' offers an annual rate of 3.46%, Woori's 'WON Plus Deposit' 3.45%, and Shinhan and Hana's 'Solpyeonhan Fixed Deposit' and Hana's 'Fixed Deposit' stand at 3.40% per annum.

The decline in bank fixed deposit interest rates is due to the continuous downward stabilization of market interest rates. The one-year financial bond rate, which serves as the benchmark for one-year fixed deposits, has fallen from the 5% range in November last year to around 3.5% recently. As deposit interest rates fall, investors are leaving banks. The balance of fixed deposits at domestic banks decreased by 7.2 trillion won from January to March.

The bond market is the area that individual investors have recently been focusing on. According to the Korea Financial Investment Association, individual investors' net bond purchases last month amounted to 4.2478 trillion won, surpassing the previous record of 3.2463 trillion won in August last year. Due to the sharp interest rate hikes last year that destabilized the asset market, individual net bond purchases exceeded a record high of 20 trillion won, and the cumulative net purchases over the first four months of this year reached 12.9032 trillion won, threatening last year's record.

Among these, the types of bonds that have recently attracted strong buying from individual investors are ultra-long-term government bonds with maturities between 20 and 30 years, financial bonds with maturities under six months, and corporate bonds. For the former, as the base interest rate is falling in the mid-to-long term, investors are attracted by capital gains and tax-saving effects; for the latter, based on high stability, they offer yields exceeding the deposit interest rates, which remain in the 3% range, making them popular according to industry sources.

According to a recent report published by Hi Investment & Securities, among individual investors' net purchases of government bonds last month, bonds with maturities over 20 years and up to 30 years accounted for the largest portion at 587.2 billion won. Among financial bonds, net purchases of bonds with maturities under six months were the highest at 599.4 billion won, with bank bonds making up 89.1% of this. Additionally, short-term corporate bonds with high credit ratings were also popular.

Kwon Seong-jeong, Head of the Gold PB Department at Hana Bank Club One PB Center, stated, "In the case of ultra-long-term government bonds, even a 1 percentage point drop in the base interest rate can yield returns in the double digits, which is why investment has been increasing recently." He added, "Most bank bonds have a triple-A credit rating, offering excellent stability, and depending on the investor's situation, they can expect high returns in the 4-5% range, higher than deposits, making them popular among investors with conservative market outlooks."

The stagnant stock market is also attracting attention, especially from aggressive investors. As of the 27th of last month, investor deposits reached 53.4928 trillion won, a 22.4% increase from the low point of 43.6928 trillion won. Individual short-term money market fund (MMF) deposits also rose to 14.5038 trillion won, about 6.6% higher than the year-end figure of 13.6031 trillion won. Both investor deposits and MMFs represent funds waiting to be invested, indicating signs of an exodus from deposits.

A financial industry insider said, "Given the ongoing uncertainty in the financial markets, stability-oriented investors still show greater interest in bonds," adding, "As the rally related to secondary batteries comes to an end, rather than rushing in, investors seem to be preparing to shift to tech stocks like semiconductors or healthcare once interest rate cuts become more visible."

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