Korean retail investors net buy bonds at record $3.2 bn in April

South Korean individual investors flocked to the bond market with net purchases of 4.25 trillion won ($3.2 billion) in April, the highest record on a monthly basis. A growing number of investors speculate that bond prices have troughed as the Bank of Korea (BOK) has frozen the policy interest rate for a second straight meeting and some middle-tier rated corporate bonds will offer high yields.    

Their net purchase of bonds per month previously peaked at 3.25 trillion won last August and remained at 2 trillion-3 trillion won from January to March of this year. April's net purchases include Korea treasury bonds worth 1.55 trillion won, 860.7 billion won in corporate bonds and 816.6 billion won in bank bonds, according to Korea Financial Investment Association data on Sunday.

Retailers are increasing net purchases of bonds, predicting the central bank will stop the policy tightening in the near future. They expect bond prices to rise when the BOK starts cutting the policy rate.

Many of them are migrating to corporate bonds with middle-tier credit ratings that provide higher yields than bank savings.

The top 30 corporate bonds net bought by retail investors in April included HD Hyundai Heavy Industries Co. rated A, GS Engineering & Construction Corp. with A+, according to local brokerage house Hi Investment Securities Co. Both offer annualized returns in the mid-4 percentage range.

Korean Air Lines Co., rated BBB+, is also popular with individual investors. In the flag carrier’s bookbuilding on April 17, about 81.5% of the bonds were subscribed by brokerages, which means most of the securities will eventually be held by retail investors.

Insurers’ junior bonds are also gaining popularity with individual investors.

Fubon Hyundai Life Insurance Co. issued 80 billion won worth of subordinated bonds on April 26, 10 billion won more than it previously planned. The insurer's bookbuilding for institutional investors on April 18 was undersubscribed, but it successfully lured individual investors with an annualized rate of 7.3%.

The government bond market has seen steady demand from retail investors thanks to tax-efficient returns. Treasury bonds with maturities of 20 and 30 years have been the most popular with retailers so far this year.

Write to Hyun-Ju Jang at blacksea@hankyung.com

Jihyun Kim edited this article.