Bond prices expected to rise if rates fall

Currency-hedged product pays mid-month distributions

Samsung Asset Management announced Monday that net assets in its KODEX US 10-Year Treasury Active ETF surpassed 200 billion won, reaching 204.1 billion won ($153 million). [Samsung Asset Management]
Samsung Asset Management announced Monday that net assets in its KODEX US 10-Year Treasury Active ETF surpassed 200 billion won, reaching 204.1 billion won ($153 million). [Samsung Asset Management]

Samsung Asset Management said Monday that net assets in its KODEX US 10-Year Treasury Active ETF reached 204.1 billion won ($153 million), surpassing the 200 billion won threshold.

The product invests in US government bonds with remaining maturities of seven to 10 years, as well as related ETFs. Its duration — a measure of a bond's price sensitivity to changes in interest rates — stands at approximately 6.8 years.

The ETF is currency-hedged, reducing exposure to won-dollar exchange rate fluctuations. It pays distributions on the 15th of each month and is available through individual pension and retirement pension accounts. Investors who pair it with ETFs that pay at month-end can structure a cash flow that arrives twice a month — around mid-month and at the end of the month.

The inflows reflect demand from investors looking to lock in current interest income while US long-term Treasury yields remain elevated, and to position for potential capital gains should rates eventually fall. However, investors should note that bond prices could decline if market rates rise further.

According to Samsung Asset Management, the US 10-year Treasury yield surpassed 5 percent in mid-September before climbing to around 5.3 percent. Even after the Federal Reserve held its benchmark interest rate at an annual 3.75 to 4.00 percent on Wednesday (local time), the 10-year yield has continued to hover around 5 percent.

Im Tae-hyeok, head of Samsung Asset Management's ETF management division, said investor money is "consistently flowing in to get ahead of the roughly 5 percent annual yield on US 10-year Treasurys." Im added that the product "will serve as the most efficient and stable investment vehicle for investors looking to take advantage of the current market environment, where medium- to long-term rates remain elevated."

Retail investor funds are also flowing into Samsung Asset Management's other monthly dividend ETFs. Cumulative net purchases by retail investors since the start of the year in the KODEX 200 Target Weekly Covered Call and KODEX 200 Covered Call Active products reached 3.01 trillion won and 1.13 trillion won, respectively, as of Oct. 26, together surpassing 4 trillion won. The two products pay distributions in the middle and at the end of each month, respectively.


hajun825@heraldcorp.com