Shinhan Investment Corp. Sees Limited Benefits in Long-term Bond Liquidation and Short Positions

Shinhan Investment Corp. stated in a report on the 15th that the benefits of liquidating long-term bonds or establishing additional short positions at the current interest rate levels are not significant. Long-term bond prices have entered a relatively attractive range, and signs of easing supply-demand imbalances are emerging. The report points to regulatory changes related to insurance companies as a cause of the weakness in long-term bonds, explaining that abnormal excess demand for long-term bonds has occurred following the implementation of IFRS 17 and K-ICS in 2023. Insurance companies had incentives to increase their holdings of long-term bonds that align with long-term liabilities, but demand has slowed due to regulatory adjustments by the government and efforts by insurers to reduce duration gaps. Fundamental factors and external influences have also exacerbated the weakness in long-term bonds, and aggressive short betting has accelerated this decline. Shinhan Investment Corp. believes that the weakness in long-term bonds is unlikely to immediately transition into strength, but they assess that the current selling pressure may be reversed. The 10-year to 30-year spread has reached an appropriate level, and the willingness to adjust supply may act as a factor for improving market sentiment.

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