"Q3 Recommends Buying Short-Term and High-Grade Bonds, Q4 Suggests Purchasing Long-Term Bonds"

Recommended US Investment-Grade Bonds and Ultra-Short-Term Bonds for Q3
Increasing Long-Term Bond Allocation from Q4

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Korea Investment & Securities recommended focusing on interest income by including short-term bonds or high-quality corporate bonds in the third quarter for U.S. bond investments, and advised purchasing long-term bonds starting from the fourth quarter. They explained that it is difficult to expect a sharp decline in the benchmark interest rate as in the past, and that it is an opportunity to expand the duration of bonds by gradually increasing the proportion of long-term bonds during adjustment periods over the long term.

On the 18th, Ji-yeon Hwang, a researcher at Korea Investment & Securities, stated, "As we move into the fourth quarter, the upside of long-term interest rates is increasingly limited," adding, "Through long-term government bond investments, it will be possible to simultaneously pursue a solid coupon income exceeding 3% and capital gains."

Researcher Hwang recommended gradually increasing the equity ratio until the third quarter, while focusing bond investments more on interest income than capital gains due to uncertainties regarding interest rate cuts. From this perspective, investment-grade U.S. bonds and ultra-short-term bonds were recommended.

He diagnosed, "The spread of U.S. investment-grade (IG) corporate bonds remains low based on a sound economy," and "Compared to the beginning of the year, investment-grade bonds have shown positive returns and outperform government bonds." Unless the global economy enters a recession with a sharp downturn, the relative advantage of investment-grade bonds is expected to continue.

Additionally, Researcher Hwang emphasized, "Attention should also be paid to ultra-short-term bonds, which can most directly benefit from the increased interest rates," evaluating that "BIL, a representative ultra-short-term bond ETF, has very low volatility and offers a dividend yield exceeding 5%, guaranteeing attractive interest income."

From the fourth quarter, he advised gradually increasing the bond ratio instead of expanding the proportion of risky assets. This is because as the second half progresses, interest rate cuts are expected to become visible, causing bond yields to form a range and gradually decline.

Researcher Hwang forecasted, "As we move into the fourth quarter, the upside of long-term interest rates is increasingly limited," and "Through long-term government bond investments, it will be possible to simultaneously pursue a solid coupon income exceeding 3% and capital gains."

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