As the National Pension Service raised its target ratio for domestic stock holdings, it decided to gradually reduce its allocation to domestic bonds. The investment strategy of the National Pension Service fund management committee is seen as tilting more toward profitability than stability.
The National Pension Service's allocation to domestic bonds has steadily decreased. Because of this, experts said the fund committee's latest decision is unlikely to have a big impact on the domestic bond market. However, with bond yields surging recently, the news that the "big player" National Pension Service will also reduce its allocation is heightening tension in the bond market.
Looking at the 2026 asset-by-asset target weight adjustments and the 2027–2031 midterm asset allocation plan approved on the 28th, as the domestic stock target weight rose, the target weights of other asset classes were revised downward.
In particular, the target weight for domestic bonds is expected to shrink both this year and next year. This year's domestic bond target weight was cut to 23.1%, down 1.8 percentage points (p) from 24.9%. The 2027 target weight was also reduced by 1.3 percentage points to 21.8%.
Reflecting the surge in the domestic stock market, the fund committee raised this year's domestic stock target weight to 20.8% from 14.9%. In the 2027 asset-class target weights, domestic stocks were also set at 20.8%. As the share of domestic stock investment increases, the bond allocation has effectively decreased. The industry views the National Pension Service's fund management strategy as shifting from "stability" to a focus on "profitability."
Experts predicted that even if the National Pension Service's domestic bond target weight is reduced, it will not immediately have a major impact on bond market supply and demand.
A person at a financial investment firm said, "Demand for domestic bonds by the National Pension Service had been on a continuous decline," and added, "Given that the bond market had already entered a downturn due to concerns about inflation, expectations of a base rate hike, and a weak won, it doesn't seem likely to have a significant immediate impact on supply and demand."
As of the end of February this year, the National Pension Fund portfolio shows domestic bonds accounted for 18.5% (297.7 trillion won). The National Pension Service's domestic bond allocation has continued to fall, from 34.9% in 2022 to 31.5% in 2023, 28.4% in 2024, and 20.9% in 2025.
However, the bond market is on edge over the news that the "big player" National Pension Service may further reduce its allocation. With Government Bonds yields rising amid worries about inflation and monetary tightening, investor sentiment could weaken further.
Concerns about the stability of fund management could also grow in the mid to long term. Nam Jae-woo, a senior official at the Korea Capital Market Institute, said of the National Pension Service's decision, "This decision by the National Pension Service can be understood as a measure to minimize the shock to the stock market while sacrificing the fund's stability."
In a report published last year, the Korea Capital Market Institute added, "Expanding risky assets can increase the fund's operating revenue over the long term, but it can also increase the volatility of the fund size and the volatility of the investment weights of certain asset classes."
The National Pension Service's absence on the demand side could lead to higher issuance expenses in the mid to long term. Nam said, "In the Government Bonds market, the National Pension Service is a key supply-and-demand player," and analyzed, "If the National Pension Service's allocation declines over the mid to long term, from the authorities' perspective it could raise issuance expenses."