Bargain buying as U.S. long-term yields surge... Individual investors put ₩50 billion into 10-year Treasury ETF

[Financial News] As U.S. Treasury prices have fallen sharply amid a surge in long-term interest rates, individual investors have been putting money into exchange-traded funds (ETFs) that invest in 10-year U.S. Treasuries. The lower price volatility compared with 30-year bonds, along with the potential for bond prices to rise if interest rates fall in the future, is believed to have drawn investor demand.
Korea Investment Management Co., Ltd. said on the 11th that individual investors’ cumulative net purchases of its ACE US 10-Year Treasury Active ETF over the past six months totaled 50.3 billion won as of the 10th. Net assets stood at 193.5 billion won on the same day. Individual investors were net buyers on all but two trading days since September 9.
Listed in July last year, the product invests in U.S. Treasury securities issued by the U.S. Treasury with remaining maturities of more than seven years and no more than 10 years. It seeks to outperform its benchmark, a won-converted version of the ICE U.S. Treasury 7-10 Year Bond Index (Total Return).
The recent buying by individual investors is attributed to bargain-hunting demand after bond prices fell as U.S. long-term interest rates rose. Investors appear to believe they can secure current interest income while also seeking capital gains from higher bond prices if market interest rates fall in the future.
Its price sensitivity to interest-rate changes is lower than that of 30-year bonds. The ACE US 10-Year Treasury Active ETF has a duration of 6.7 years, shorter than the 15.01 years of the ACE US 30-Year Treasury Active ETF. This means it entails relatively less price volatility even if market interest rates move by the same amount.
It also seeks to provide cash flow through monthly distributions. Its distribution rate over the past year is 3.93%.
Choi Eun-young, a senior executive in the Overseas Fixed Income Management Department at Korea Investment Management Co., Ltd., said, “This is a product that allows investors concerned about the price volatility of 30-year bonds to invest in U.S. Treasuries while seeking monthly cash flow.” She added, “We offer a range of U.S. Treasury investment products so investors can choose maturities and whether to hedge currency risk in line with their investment objectives and outlook for interest rates and exchange rates.”
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