A shift is underway in the investment behavior of Korea’s “Seohak Ants” — retail investors who specialize in foreign (mainly U.S.) markets. Amid rising interest rates and concerns over U.S. fiscal stability, many are pulling money out of U.S. stocks and diving into long-dated Treasury bonds.
5% Yields Catch Investors' Eyes
U.S. Treasury yields recently topped 5%, a level many investors see as too attractive to ignore. The spike is driven by a combination of rising fiscal anxiety in the U.S. and looming debt ceiling uncertainty.
For Korean investors, May 2025 marked a record month: over 2 trillion KRW (approx. $1.52 billion) worth of U.S. Treasuries were purchased — the highest monthly net buying ever recorded. Long-duration bond ETFs, especially leveraged ones, drew intense interest. A standout example: Direxion Daily 20+ Year Treasury Bull 3x (TMF) attracted $175 million in inflows.
The yield on the 30-year U.S. Treasury soared to 5.15% in May, before easing to the 4.8–4.9% range in early June. The bond market’s volatility has been partly fueled by concerns over large-scale tax cuts and widening deficits — both seen as structural risks to U.S. fiscal health.
The U.S. Debt Ceiling Looms Again
Adding to market tension is the expected standoff over the U.S. debt ceiling, with a potential X-date around mid-August. The U.S. Treasury has warned that without an increase in the borrowing limit, emergency funds may run dry and budget disbursements could be suspended — a scenario that could trigger another yield spike.
The market remains split on how to interpret this moment:
“We’re at the early stage of a classic debt death spiral,”
— Ray Dalio, Founder, Bridgewater Associates
“This is just market hysteria. It’s a short-term overreaction — and a buying opportunity for mid-duration bonds.”
— Jim Caron, CIO, Morgan Stanley IM
Opportunity or Crisis?
Those in the “crisis camp” argue that rising yields may continue due to sustained fiscal worries, even without a full-blown recession. In that case, bond prices could fall further — particularly dangerous for retail investors holding leveraged bond ETFs.
In contrast, “opportunity seekers” expect a softening U.S. economy to push the Fed toward rate cuts. Supporting this view are slight declines in 10-year Treasury yields (from 4.413% to 4.357%) and projections like Morgan Stanley’s forecast of 3.4% yields by 2026.
From NVIDIA to Notes: A Portfolio Pivot
There’s a visible pattern among Korean retail investors: a sharp reduction in holdings of high-profile U.S. stocks like Tesla and NVIDIA, replaced by increased positions in long-term Treasuries. This reflects a tactical shift to mitigate risk amid policy uncertainty and elevated interest rates.
In volatile markets like this, having a clear investment framework is more critical than ever. While no one can predict whether yields will rise or fall from here, current U.S. Treasury rates — hovering between 4.9% and 5% — are historically compelling. For those entering the market, a dollar-cost averaging approach is advisable to hedge against further yield spikes.
Don't Forget the Dollar Risk
Unlike domestic bonds, U.S. Treasuries must be purchased in U.S. dollars. That means FX volatility becomes part of the equation. With geopolitical tensions rising — notably between Israel and Iran — the once-declining dollar has become unpredictable again. While Treasury yields remain attractive, a weakening dollar could erode overall returns for Korean investors, raising concerns about potential currency losses.
For Korea’s global retail investors, the choice between stocks and bonds has never been more stark. Is this the moment to lock in 5% and ride out the storm — or will rising yields turn into a trap for the unwary? One thing is certain: the ants are on the move.
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