Individual investors in South Korea continued purchasing 30-year Korean treasury bond ETFs during the first half of the year despite mounting valuation losses, according to bond industry data released on the 7th. The persistent buying occurred as 30-year KTB yields rose sharply, causing three major ETFs tracking this maturity to post double-digit percentage losses. Industry observers attribute the buying pattern to investors' belief that bond yields, unlike stock prices, cannot rise indefinitely and represent value at current levels.
Three 30-Year KTB ETFs Post Double-Digit Losses in First Half
Among the top 30 bond ETFs net purchased by individual investors since the beginning of the year, three products tracking 30-year Korean treasury bonds recorded double-digit negative returns, according to Yonhap Infomax ETP investor trading data. RISE KIS Korea Treasury Bond 30-Year Enhanced fell 24.75%, while KODEX Korea Treasury Bond 30-Year Active declined 18.48% and KIWOOM Korea Treasury Bond 30-Year Active dropped 18.92%. These were the only products among the top 30 net purchases to show double-digit losses, with other bond ETFs posting positive returns or minor declines. The pronounced yield increase in 30-year KTBs combined with a duration of approximately 22 years drove the significant performance decline.
Individual Investors Net Purchase 2.4 Billion Won Despite Redemptions
Despite ongoing losses, individual investors net purchased approximately 2.4 billion won of RISE KIS Korea Treasury Bond 30-Year Enhanced over the most recent week. This buying activity contrasted sharply with redemptions occurring in the same product, as listed shares decreased by 608,000 units during the same period, representing a reduction in assets under management exceeding 60 billion won. The divergence between individual investor purchases and overall fund outflows highlighted the persistence of retail buying interest.
Experts Divided on Long-Term Value Versus Short-Term Risks
A bank dealer suggested that individual investors may be searching for ETFs by sorting investment returns in reverse order, which would surface the 30-year KTB ETFs at the top of underperforming products. "There is demand to hold at low prices, thinking that bond yields cannot continue rising over the long term like stocks," the dealer stated, adding that "assuming a long-term holding period, this may not be a bad choice from a return perspective as yields have a clear ceiling while stock hedging needs are gradually increasing."
A securities firm bond dealer noted that short-term performance depends on the government's second-half budget plan and future KTB issuance. "If the budget scale is larger than expected and bond issuance expands more than anticipated, 30-year bonds will be hit first," the dealer stated, adding "ultimately it depends on government policy direction."
Im Jae-kyun, researcher at KB Securities, stated that "in the short term, for the weakness in 30-year bonds to ease, a reduction in the guideline proportion for long-term bond issuance is needed," and "in the long term, expansion of insurance company demand and a large-scale reduction in 30-year issuance proportion appear necessary." Im added that "major countries' 30-year to 10-year spreads are roughly around 50bp, and as the long-inverted Korea 30-year to 10-year yield curve normalizes, predicting the upper bound of the spread is difficult."
FAQ
Q: Which 30-year Korean treasury bond ETFs showed the largest losses in the first half of the year?
A: RISE KIS Korea Treasury Bond 30-Year Enhanced recorded a loss of 24.75%, KODEX Korea Treasury Bond 30-Year Active declined 18.48%, and KIWOOM Korea Treasury Bond 30-Year Active fell 18.92% during the first half of the year.
Q: Why did individual investors continue buying 30-year treasury bond ETFs despite significant losses?
A: According to a bank dealer quoted in the bond industry data, investors appear to believe that bond yields cannot rise indefinitely like stock prices and view current levels as an opportunity to acquire holdings at lower prices for long-term portfolios, particularly as stock hedging needs increase.
