Bond funds are expected to show a higher rate of return in the first half of this year thanks to a surging foreign capital inflow.
Financial market data provider FnGuide said on Jan. 2 that the average earnings rate of bond funds in the domestic market stood at 2.67 percent last year. The figure is far better than minus 18.58 percent of domestic equity funds over the same period. Public offering bond funds attracted 318.2 billion won (US$283.47 million) for a month in December last year alone.
The domestic bond market was brisk despite a number of unfavorable factors, including a rise in the benchmark interest rate by the U.S. Federal Reserve System (Fed), because a large foreign capital inflow. Foreign investors net bought 6 trillion won (US$5.35 billion) in the domestic bond market for a month as of the end of December last year, according to the Financial Supervisory Service (FSS). The figure was five times higher than 1.34 trillion won (US$1.2 billion) in November. With strong foreign buying, the interest rate of 10-year government bonds dropped by 15.8 basis points for a month in December alone.
Market experts believe that the domestic bond market will be bullish for a while with the net buying trend of foreign investors. However, the foreign buying trend is expected to become weak as time goes by toward the second half of the year when the Fed is expected to additionally raise the benchmark interest rate.