With expectations that the Bank of Korea will keep its benchmark rate on hold for an extended period, more than 1 trillion won flowed out of bond funds over the past week.
According to FnGuide, as of the 2nd of this month, the assets under management of 390 domestic bond funds totaled 104.5048 trillion won. That is down 1.3408 trillion won from a week earlier.
In contrast, the assets under management of 1,053 domestic stock funds rose 793.2 billion won over the same period to 64.1368 trillion won.
The outflows from bond funds are seen as the result of lower returns as Treasury yields rose recently. The three-year Treasury yield climbed 12 basis points over the past week, from an annualized 2.902% to 3.022% (1bp=0.01 percentage point).
With rising rates, bond fund returns were sluggish. The weekly return was -0.12%, in contrast to the 3.19% recorded by stock funds over the same period.
Market participants say the view that the Bank of Korea will keep the base rate unchanged for a long time contributed to the rise in Treasury yields. the Bank of Korea's monetary policy committee kept the base rate at an annualized 2.50% on the 27th of last month. It was the fourth straight hold.
In particular, the policy statement revised "easing path" to "possibility of easing," and changed the "timing" of additional easing to "whether," which the market interpreted as a "hawkish" (monetary tightening) signal. As a result, there is growing expectation that the rate hold will continue through the first half of next year.
Brokerages expect rates to remain around current levels for the time being. Kim Jiman, a Samsung Securities analyst, said, "At year-end, volatility is likely to stay high as institutions close their books or cut losses," adding, "With expectations for an economic recovery intersecting with inflation concerns, it does not look easy for rates to stabilize quickly."