The banking sector and foreign investors bought a quantity of three-year treasury bond futures, expecting that there will be a base rate cut next month, to drive up the open interest to over 300,000 contracts for the first time ever.
According to the Korea Exchange, the number of contracts outstanding increased by 6,000 from a day ago to 302,876 to reach a new high. Compared to the end of last year, when the figure was 220,254, the amount increased by approximately 37%. The rapid increase implies that more and more investors are opting for long-term investment, predicting the movement of the index in view of the actual demand, while refraining from short-term trading.
The increase can be attributed to a higher-than-expected ratio of foreign investors. In the three-year bond futures market, the ratio of foreign investors rose from 12.9% to 19.6% between October last year and this year. The derivative product for interest rate risk management has a face amount of 0.1 billion won and an annual coupon rate of 5%. The interest is paid every six months.
“With the key rate having been frozen this month, an increasing number of investors are anticipating a base rate cut in March to raise the number of contracts outstanding to over 300,000 for the first time in history,” said Hwang Sun-koo, who is heading the Financial Derivatives Management Team of the Korea Exchange. He continued, “This means that more and more foreign investors are turning toward long-term investment in treasury bond futures.”