Debt market crash in Korea draws retailers to the market amid rising yields

Mom-and-pop investors in South Korea are migrating fast to bonds from the sluggish equity market amid rapidly rising interest rates, buying a net 16.4 trillion won ($11.5 billion) in bonds so far this year, nearly four times bigger than their total purchases last year.

According to Korea Financial Investment Association on Thursday, individual investors net bought 16.4 trillion won worth debt from the over-the-counter market between January 3 and Oct. 26, four times greater than last year’s 4.6 trillion won.

Brokerages have turned eager to sell bonds due to revenue losses from bearish stock market.

“The retail demand has sharply increased compared with last year,” said Kim Eun-ki, a researcher at Samsung Securities. “Since retail investment tends to be small, their role does not affect the market that much. But their input can help the debt market sustain until the end of the year,” he added.

The Korean debt market has lately been wrecked by heavy selling by foreign and local institutions after the Legoland-related default by public issue caused spook in public debt. Financial institutions and companies in need of fast liquidity have been offering issues in shorter and higher yields.

The bigger money opportunities have brought in novices to the market.

According to KB Securities, 63.5 percent of 14,289 individuals who purchased bonds through the brokerage this year opened account for bond trade for the first time.

Bondholders at the brokerage increased 45 percent to 29,000 by the end of September from 20,000 at the end of December, KB Securities said. Among new holders, 63 percent invested less than 100 million won.

“We have been recommending bonds to our VIPs,” said Kwak Sang-joon, branch manager at Shinhan Investment’s Gangbuk center. “The AAA KEPCO bonds have been outsold, and credit card issues are also in high demand for high returns despite investment grade.”

More savvy investors are taking up longer-dated bonds as the money from spread difference can be bigger when rates start falling.

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