2024-05-08 09:50:41
Hantu’s sales last year were 730 billion won.
As of April this year, it has already amounted to 1.535 trillion won.
The proportion of long-term bonds surges due to expectations of interest rate cuts.
Risk of loss when the won-dollar exchange rate plummets
“There is no reason not to invest when you can invest in the United States, the safest country in the world, and earn returns of more than 4% every year.”
Mr. Park (66), a retiree who is said to have invested hundreds of millions of won in U.S. government bonds, has been investing in long-term U.S. government bonds with a remaining period of more than 5 years (the remaining period from the bond purchase date to the maturity date) since 2023. He started investing in U.S. Treasury bonds at the recommendation of his friends, and he said he was already earning more than double-digit returns due to the interest he received every six months plus the effect of rising exchange rates. He said, “If the U.S. Federal Reserve (Fed) lowers the base interest rate, bond prices rise, so you can also reap profits from trading.” He added, “Tax is paid on bond interest, but trading profits are tax-free, which is advantageous for high-net-worth individuals. “He explained.
● U.S. Treasury bonds are selling like crazy… Already double last year
As U.S. Treasury interest rates remain high, investment in U.S. Treasury bonds is rapidly increasing among domestic and foreign individual investors.
According to ‘Status of U.S. Treasury Bond Sales to Individual Investors’ obtained by Dong-A Ilbo from Korea Investment & Securities on the 7th, the amount of U.S. Treasury bonds sold by Korea Investment & Securities to individual investors as of April this year amounted to KRW 1.535 trillion. In just four months this year, more than double last year’s annual sales (KRW 730 billion) were sold. In March, 520 billion won worth of U.S. Treasury bonds were sold, setting a monthly record. However, in April (KRW 295 billion), sales slowed compared to the previous month as the possibility of an early interest rate cut in the United States diminished.
It has been shown that global individual investors are reaping enormous profits by investing in U.S. Treasury bonds. According to Bloomberg on this day, the U.S. Treasury paid about $89 billion (about 120.7 trillion won) in interest to government bond holders in March alone. This means that $2 million was paid per minute during the month of March. Previously, the U.S. Congressional Budget Office (CBO) predicted that $327 billion (approximately 444 trillion won) in interest and dividends would be paid this year to individual investors holding government bonds alone, which is estimated to be double that of 10 years ago.
U.S. Treasury interest rates have risen sharply since March 2022 as the Federal Reserve sharply raised its benchmark interest rate. The 10-year benchmark interest rate was in the 1% range until early 2022, but exceeded 3% in May of the same year. On October 19 last year, when expectations of a prolonged period of high interest rates were growing, the rate exceeded 5% for the first time in 16 years.
● “Interest rate cut is coming”… U.S. long-term bond investment also surges
As the perception spread that U.S. Treasury interest rates had reached their peak, the proportion of long-term bond investments also increased rapidly. According to Korea Investment & Securities, the proportion of long-term bonds, which was only 2% in 2022, increased to 68% in 2023 and 74% as of the end of April this year. A bond industry official said, “Usually, based on 10-year government bonds, whenever the base interest rate falls by 0.01%, bond prices rise by about 0.08%,” adding, “This is why bond investment increases during periods of interest rate cuts.”
Experts predicted that individual investment in U.S. Treasury bonds will increase for the time being. This is because the possibility of an interest rate hike in the United States has virtually disappeared and the preference for safe assets has strengthened. Park Sang-do, managing director of the bond products department at Korea Investment & Securities, predicted, “Global benchmark interest rates will fall, starting with Europe.”
However, some point out that the decline in the won-dollar exchange rate due to the weakening dollar could be a variable in investing in U.S. Treasury bonds. Kim Miru, a researcher at the Korea Development Institute (KDI), said, “Because there is a large demand for U.S. investment, the timing of the government bond interest rate cut may be pushed back further.” He added, “If the won-dollar exchange rate falls earlier than the government bond interest rate decline, investment losses may occur. “It can happen,” he said.
Reporter Lee Dong-hoon [email protected]
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2024-05-08 09:50:41