Individual investors have begun betting on the decline in long-term interest rates of U.S. Government Bonds (price increase). This is interpreted as a result of a strong belief that the Federal Reserve (Fed) will resume cutting interest rates amid the financial deficit burden from the tariff policies and tax cuts of the Donald Trump administration. However, there are many variables that could affect interest rates in the near term, so caution is needed.
According to the Korea Securities Depository (KSD) on the 22nd, domestic investors made a net purchase of $43.32 million (about 60 billion won) of 'TMF' from the 1st to the 18th (based on settlement date). This marked a turnaround from the previous month, where net sales were at $75.44 million (about 105 billion won).
TMF is an exchange-traded fund (ETF) that follows the daily rise and fall rate of an index composed of U.S. Government Bonds with a remaining maturity of over 20 years at three times the rate. The fact that many overseas individual investors (known as 'seohakgaemi') are stepping in to 'buy' TMF indicates that they believe that U.S. Government Bonds interest rates will decline (and prices will rise).
Individuals have also purchased U.S. Government Bonds long-term leveraged exchange-traded notes (ETNs) in the domestic stock market. Personal net purchases are evident in 'Meritz 3X Leverage 30-Year U.S. Government Bonds ETN,' 'KB Leverage 30-Year U.S. Government Bonds ETN,' and 'Hantoo 3X Leverage U.S. Government Bonds 30-Year ETN,' all of which track the daily rise and fall rates of 30-year U.S. Government Bonds by 2-3 times.
However, the performance of long-term investments in U.S. Government Bonds has not been very good. In the case of TMF, the average evaluation loss rate for 5,440 investors linked to Naver's 'My Assets' service exceeds 20%. The average evaluation loss rate for Meritz 3X Leverage 30-Year U.S. Government Bonds ETN is around 13%.
Nevertheless, as long-term interest rates for U.S. Government Bonds surged, they seem to have been seen as a buying opportunity. The 10-year U.S. Government Bonds rate, which serves as a benchmark for global bond yields, rose from around 4.2% to 4.49% this month, while the 30-year bonds also breached the 5% mark from around 4.7% during the same period.
Concerns have again arisen that President Trump may dismiss Federal Reserve Chairman Jerome Powell. Although Trump stated that the likelihood of Powell's dismissal is 'very low,' thereby bringing some calm to Government Bonds interest rates, the tension between the two continues. Trump has referred to Powell as 'Mr. Too Late,' emphasizing his ongoing demands for interest rate cuts. Powell has responded by suggesting that uncertainty over Trump's tariff policies is delaying interest rate decisions.
In the short term, events that could stimulate interest rates are ongoing. On the 22nd (local time), Chairman Powell is scheduled to speak at a conference on 'integrated review of capital frameworks for large banks.' Considering the topic, he is unlikely to directly mention monetary policy; however, interest from the market is focused on this public speech ahead of next week's Federal Open Market Committee (FOMC) regular meeting.
On the 23rd, a bidding for long-term U.S. Government Bonds, including the 20-year bonds, is scheduled, along with bids for long-term bonds from the UK and Japan. Notably, this is the first bidding following the House of Councilors election in Japan. Since the ruling coalition was unable to maintain a majority in this election, the scale of bidding and bidding rates may impact both Japan and global markets.
Kim Ji-na, a researcher at Eugene Securities, advised to pay attention to the U.S. Treasury's quarterly bond issuance plan (QRA) announcement set for the 30th. He noted that 'currently, the factors favoring U.S. Government Bonds are limited to the issuance of stable coins,' adding, 'even that conflicts with the increased issuance of Government Bonds due to the Trump administration's fiscal expansion, so attention should be given to the QRA.'
Whether Trump's 'shaking Powell' will continue is a key factor. The global investment bank Deutsche Bank predicted that if Powell were dismissed, the interest rate on 30-year U.S. Government Bonds would jump by 0.45 percentage points.
Park Sang-hyun, a researcher at iM Securities, stated, 'From President Trump's perspective, dismissing Chairman Powell has more disadvantages than advantages, making the likelihood of execution small, but the pressure may intensify.' He added that if a 'shadow Fed chairman' is appointed early, uncertainties surrounding monetary policy could expand.