A $2 Billion Purchase of Korea Bonds in a Day Creates a Stir

(Bloomberg) -- A sudden $2 billion inflow into South Korean bonds in one day is fueling chatter over who's behind the purchase.

The net buying on Tuesday was the biggest for a single day since June 2015, according to data from the Financial Supervisory Service which doesn't disclose details such as the location of the funds involved. The inflows could be due to foreign investors reinvesting short-term money or central banks scooping up longer-tenure securities, strategists said.

The wave of buying indicates that a market which drew a record $62.3 billion last year, when peers in Asia saw outflows with the pandemic, remains attractive to some investors. Seoul traders have warned that South Korean government bonds may struggle to absorb record issuance aimed at funding aid for businesses and consumers.

“It seems foreign investors are reinvesting short-term funds that have matured by large amounts in December,” said Kang Seungwon, fixed income strategist at NH Investment & Securities Co. Still, the inflow may not last as “there aren't many factors left for won bonds to attract foreign investors this year,” he said.

The yield on benchmark 10-year bonds has advanced for four straight months after the government tabled four supplementary budgets in the past year. It could rise to 1.9% in 2021, a level last reached almost two years ago, from around 1.78% now, according to Paik Yoon-min, a fixed-income analyst at Kyobo Securities Co.

South Korea's ruling party is considering more cash handouts, which may require another supplementary budget. State news agency Yonhap News reported this week that party officials are mulling extra spending of 20 trillion won to 30 trillion won.

The sudden jump in purchases indicate that foreign funds are either betting on a recovery in hedging premiums, or they are making up for their latest reduction in shorter-term bonds, said Koo Hyeyoung, fixed-income analyst at Mirae Asset Daewoo. “The latter is more likely as the dollar outlook doesn't look so strong and as there are expectations for an economic rebound,” she said.

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