A, 34, who lives in Gyeonggi Province, bought 10 million won worth of a 10-year personal investment Government Bonds issue released last year. A judged it was better than time deposits with interest rates in the 2% range because the Government Bonds' average annual return was 3.7%. But A recently redeemed early and switched to Government Bonds issued in January this year. It is the same 10-year product, but the average annual return is 5.4%.
On the 9th, it was confirmed that the interest rate gap between Government Bonds issued last year and those issued this year has widened to as much as 1.6 times. Based on 20-year Government Bonds, the yield to maturity of products issued this year is 147%, while last year's issue with the same maturity is 90%, a 1.6-fold difference. As personal investment Government Bonds lost popularity, the Ministry of Finance and Economy raised rates starting this year when issuing Government Bonds. As a result, the amount of Government Bonds redeemed early this year reached 10 times last year's.
Originally, Government Bonds were products invested in only by financial companies such as banks and securities firms. The Ministry of Finance and Economy issued "personal investment Government Bonds" in 2024 to broaden demand for Government Bonds and allow the public to invest stably in Government Bonds with low investment risk. The tenors are five-year, 10-year, and 20-year. When first launched, the 10-year tranche even sold out.
However, the minimum five-year maturity emerged as a drawback for being too long, and investors began to shun them. The benefit of separate taxation on interest income, a perk of personal investment Government Bonds, is also unavailable if redeemed early.
In response, the Ministry of Finance and Economy raised the yield on personal investment Government Bonds late last year. The 20-year issue released this January has a yield to maturity of 147%. That is 57 percentage points higher than the 20-year issue released last year (90%). Assuming an investment of 100 million won, the interest would differ by about 57 million won depending on the timing of purchase (90 million won last year vs. 147 million won this year).
Accordingly, the number of investors selling Government Bonds bought last year is surging. In January this year, early redemptions before maturity totaled 20 billion won for the 10-year and 13.7 billion won for the 20-year. Considering that last year's early redemptions were 1 billion to 3 billion won per month, that is about 10 times the usual level. Yoo Min-ho, an analyst at the National Assembly Budget Office, said, "Since this year, as the (Government Bonds) interest rate on new issues has risen sharply, early redemption demand appears to have increased as investors sell existing holdings and switch to new issues."
The 20-year issue released in January this year sold out, the first time since the product was launched. The 10-year sold out for the first time in 17 months since Aug. 2024. An official at a financial investment firm said, "It's the same product, but there is a big interest rate difference depending on a one-year gap," adding, "You would be a fool not to switch in this situation."