Funds Flock to Stocks While Bonds Are Left Behind

As market liquidity flows into equities, bonds are increasingly being shunned. This imbalance is disrupting supply and demand in the bond market and leading to a freezing of the credit market.
According to the Korea Financial Investment Association (KOFIA) on the 16th, net purchases of corporate bonds by institutional and individual investors from January this year through the 15th of this month totaled 4.646 trillion won. That is less than 40% of the 11.6361 trillion won recorded in the same period a year earlier. In particular, banks and central and local governments have sharply reduced their corporate bond purchases. From January to April 15 last year, banks recorded net purchases of 30.1 billion won and central and local governments 905.3 billion won. This year, however, these institutions have shifted to a net redemption stance, with redemptions exceeding new issuance. Net redemptions reached 169.1 billion won for banks and 321 billion won for central and local governments.
Public offering asset management companies also bought more than 5 trillion won in corporate bonds on a net basis last year, but this year their net purchases have shrunk to 267.3 billion won. Over the same period, net purchases by private asset management firms fell from 454.6 billion won to 129 billion won. Net purchases of corporate bonds by individual investors, who had emerged as major players in the bond market and were dubbed 'retail bond investors,' also declined from 2.9859 trillion won to 2.0744 trillion won.
A source in the financial investment industry said, "As interest in the stock market has grown recently, retail bond investors have also lost interest in bond investments," adding, "People are now asking who would even invest in bonds these days." With the possibility of a benchmark rate hike being discussed, concerns are also mounting over potential declines in bond prices.
As a result, the freezing of the credit market, where money no longer circulates smoothly, is becoming more severe.
Kim Sang-man, a researcher at Hana Securities, noted, "The short-term freezing of the credit market is intensifying," and added, "The credit spread (the yield on three-year AA- rated corporate bonds minus the yield on three-year Treasury bonds) has continued to widen overall this week, following last week." The credit spread is an indicator of investor sentiment toward corporate bonds; a wider spread generally means that companies' funding conditions have tightened compared with before.
According to KIS Pricing and its platform KIS-NET, the credit spread stood at 51.5 basis points as of January 2 this year, but had widened to 67.5 basis points as of the 15th of this month.
Amid this uncertainty, demand is also starting to concentrate in short-term bonds. Kim Sang-man explained, "Among short-term bonds, the shorter the maturity, the larger the widening in credit spreads," and went on, "This is the result of growing risk aversion, with market supply and demand increasingly skewed toward short-term instruments as uncertainty rises."
khj91@fnnews.com Kim Hyun-jung Reporter