Fed rate cut hopes spur Koreans’ US Treasury bond buying spree

US Treasury bonds are gaining popularity among retail investors in South Korea amid expectations that the US Federal Reserve will cut interest rates later this year. 

For the first 45 days of this year, Korean individual investors bought US Treasuries worth more than 1.34 trillion won ($1 billion) from eight major brokerage houses, banking sources said on Friday. The amount marks a significant increase over the same period last year, sources added.

The eight brokerage firms are Mirae Asset Securities Co., Korea Investment & Securities Co., NH Investment & Securities Co., Samsung Securities Co., KB Securities Co., Hana Securities Co., Shinhan Securities Co. and Daishin Securities Co.

Korea Investment & Securities has sold around 400 billion won worth of US Treasuries since the beginning of this year, more than half the 720 billion won it sold in all of 2023.

Samsung Securities has sold around 600 billion won of US Treasuries from Jan. 2 to Feb. 15. The figure amounts to 34.3% of the 1.75 trillion won it sold in 2023.

Another brokerage firm, its name undisclosed, said its sales of US Treasuries for the first 45 days of this year already amount to sixfold its sales in the whole of last year.

Korean retail investors’ buying spree is driven by their expectations that the Fed will start rate cuts later this year, banking sources said. The investors target increases in bond prices and tax exemptions on capital and foreign exchange gains from direct bond investments, sources added.

The timing of the rate cuts will depend on the pace of slowdown seen in February's US employment situation, details of which will be released on March 8, and monetary policy decisions determined by the Federal Open Market Committee (FOMC) on Mar. 20, said Daishin Securities analyst Lee Joowon.

Write to Eunhyeok Ryu at ehryu@hankyung.com

Jihyun Kim edited this article.