'They've fallen far enough': Retail investors snap up US Treasury ETFs amid rate shock

A surge in long-term US Treasury yields has sent retail investors rushing to snap up US government bond ETFs. The buying spree reflects a growing conviction that the recent global rate rise is nearing its peak, with investors betting on a rebound in bond prices.

According to Koscom ETF CHECK on Friday, retail investors net purchased 4.09 billion won ($3.01 million) worth of the ACE US 30-Year Treasury Active ETF over the past week, making it the top net-purchased bond ETF among retail buyers during that period.

Retail investors also net purchased the ACE US 10-Year Treasury Active ETF (1.39 billion won), the TIGER US Treasury 10-Year Futures ETF (1.33 billion won), the KODEX US 30-Year Treasury Active (H) ETF (830 million won) and the SOL US 30-Year Treasury Covered Call (Synthetic) ETF (690 million won), continuing to accumulate long-term US Treasury products.

The buying is seen as bargain-hunting through bond ETFs after a global "rate shock" drove sharp declines in long-term US Treasury prices. The expectation that bond prices will rebound once rates eventually turn lower has fueled the inflow of funds.

Government bond yields across major economies have risen sharply in tandem, sustaining a wave of selling in global bond markets. The selloff has been driven by mounting inflation fears following a resumption of hostilities between the United States and Iran, compounded by concerns over fiscal deficits.

The yield on the 10-year US Treasury note — the global bond market benchmark — surged to an intraday high of 4.821 percent on Wednesday (local time), its highest level since November 2023. The 30-year Treasury yield also jumped to 5.30 percent.

Yields pulled back Friday, with the 10-year Treasury trading at 4.761 percent, down 3 basis points (1 basis point = 0.01 percentage point) from the previous session.

The rate spike has pushed returns on long-term US Treasury ETFs to 52-week lows. Bond yields and prices move in opposite directions. According to Korea Exchange, the ACE US 30-Year Treasury Active and ACE US 10-Year Treasury Active ETFs each fell 4.55 percent over the past month.

Securities analysts expect upward pressure on long-term yields to persist in the near term.

Won Yu-seung, a researcher at SK Securities, said the firm expects "upward pressure to remain dominant amid high volatility for long-term US Treasury yields in the second half of this year and next year." He added that even if long-term yields temporarily decline, "a 'sell-the-rally' strategy — treating any dip as an opportunity to shorten duration rather than a trend reversal — would be appropriate."

There are also concerns in the market that the high-rate environment could persist for an extended period. According to Bloomberg, US 30-year Treasury yields exceeded 5 percent on 55 trading days from the start of this year through Monday, the most since 2006.

The backdrop is multifaceted. The US government has been ramping up Treasury issuance to cover its massive fiscal deficit, while structural demand from central banks and overseas public institutions has weakened compared with the past. Growing funding needs tied to AI investment are also seen as adding to supply pressure across bond markets. Prolonged inflation fears stemming from rising oil prices further constrain any decline in yields.

Shinhan Investment projected the 10-year US Treasury yield to trade in a range of 4.65 to 4.85 percent next week. Market attention is expected to focus on the US nonfarm payrolls report released Friday (local time) and the August consumer price index due Sept. 11.

Kim Chan-hee, a researcher at Shinhan Investment, said that "if geopolitical tensions show no sign of easing while the market remains on alert for August inflation data next week, it will be difficult to shake off weakness." He added, however, that "the Treasury's expanded buyback program for long-term bonds, set to begin on the 9th, should serve as a factor capping the upside on yields from a supply-demand perspective."