Bond Market 'Cold Wind' Amid Soaring Interest Rates

Korea Economic Daily

Summary

It reported that the sharp rise in interest rates has caused the bond market to slump.
It stated that major bond prices, including the 3-year government bond, fell, and related ETF returns also recorded the -9%% range over three months.
It analyzed that most bond investors appear to have recorded negative returns even after including this year's interest income.

Related ETFs 3-Month Return -9%

With the KOSPI index breaking through the 4,000 mark and drawing attention to the stock market, a cold wind is blowing through the bond market, a safe-haven asset. The concurrent sharp rise in market interest rates has rapidly chilled investor sentiment.

According to the Korea Exchange on the 12th, the 3-year government bond yield was 2.95% per annum that day, a sharp rise of 0.13 percentage points from the previous day. Compared with 2.43% per annum in early September when the KOSPI began gaining upward momentum, it rose by more than 0.5 percentage points. Bond prices, which move opposite to yields, fell. The price of the 3-year benchmark bond (No. 25-4) (face value 10,000 won) was 9,922 won that day, down 0.80% over about two months from 10,002 won in early September. The 10-year yield also rose from 2.84% per annum in early September to 3.20% that day.

The fading expectation of a rate cut by the Bank of Korea led to the surge in yields and forced bond sell-offs. Overheating in the real estate market, a key variable watched for base rate adjustments, persists, and the stock market continued its record-high run until last month. It is estimated that most bond investors have negative balances even including this year's interest income. Yoon Yeo-sam, a researcher at Meritz Securities, analyzed, "Compared with this year's peak, major composite bond indices have fallen more than 2.3%, entering a loss zone where even interest income has been wiped out."

In the exchange-traded fund (ETF) market, long-term government bond products took a direct hit. According to a Koscom check, 'KIWOOM Government Bond 30-Year Active' fell 9.32% over the past three months through that day, and 'PLUS Government Bond 30-Year Active' dropped 8.67%.

Reporter Tae-ho Lee thlee@hankyung.com