Koreans net purchase $1.2 bn in treasury bonds Jan.-April on low interest rates

[Photo by MK DB]

Retail investors in South Korea, mainly those with high-value assets, are on a massive buying spree of long-term Korean treasury bonds with a maturity of 20 years in anticipation of higher prices in a low interest rate environment.

According to multiple sources from the financial investment industry on Sunday, individual investors net bought 1.53 trillion won ($1.2 billion) worth of long-term treasuries between January and April. The bonds with a maturity of 20 years were issued in 2019 at a yield of 1 percent range. They are the last remaining low-coupon long-term bond.

Investors are buying the bonds in anticipation that the bond prices will go up when interest rates go down. Investors that purchased the bonds when the interest rates were at their peak in the fourth quarter last year are already receiving high returns of around 20 percent.

During the same period last year, individuals net purchased 4.1 billion won worth of the long-term Korean government bonds. They, however, started buying the bonds from the beginning of this year as the price of treasuries plunged after interest rates increased in the second half of last year.

The low-yield, long-term bonds are gaining traction as the price of the bonds surges when interest rates fall. The price of the 20-year maturity bonds jumped as much as 20 percent from October last year when interest rates soared on concerns over a credit crunch following the Legoland Korea crisis.

For bonds, only interest income is taxed and not bond gains until 2025.

Bonds issued at low interest rates act as tax-saving products for asset holders subject to comprehensive taxation of financial income.

Bond purchases of retail investors are also on a rise with the popularity of the 20-year maturity bonds.

According to the Korea Financial Investment Association, retail investors’ net purchase of bonds reached 12.9 trillion won in the January-April period.

Retail investment in popular bonds is increasing to match the level of major stocks. The only stocks with retail net purchases greater than the long-term bonds were POSCO Holdings Inc. with 3.99 trillion won and EcoPro Co. with 1.61 trillion won as of the end of April.