The Financial Supervisory Service (FSS) has revealed recurring disputes in bond investments and urged investors to be cautious when dealing with long-term bonds and over-the-counter (OTC) transactions. The agency emphasized that even low-risk bonds, such as government bonds, can incur losses if sold before maturity due to fluctuations in market interest rates.
On July 3, the FSS provided key examples of disputes related to bond trading and outlined six essential precautions for investors. According to the FSS, complaints have been consistently received regarding sales personnel who emphasize the safety of government bonds or promote investments based on anticipated interest rate declines, only for investors to experience actual losses.
The FSS explained that even low-risk bonds, like government bonds, are not immune to market fluctuations. While the credit risk of the issuing institution is low, selling before maturity can lead to losses if market interest rates rise, causing bond prices to fall. For instance, if the market interest rate for a 30-year government bond increases by one percentage point, an estimated loss of about 17% could occur.
Particularly, bonds with longer maturities are more sensitive to interest rate changes, so older investors or those prioritizing capital preservation should carefully consider the possibility of selling before maturity. The FSS cited a case where a 70-year-old investor filed a complaint after being advised to invest in a 30-year government bond, claiming the recommendation was unsuitable.
The agency also stressed the importance of making investment decisions based on long-term interest rate forecasts. Market experts find it challenging to accurately predict long-term interest rate trends, and if forecasts are incorrect, investors may be unable to sell their bonds at the desired time.
Additionally, the FSS pointed out that the benchmark interest rate and market interest rates do not always move in the same direction. Bond prices are influenced by market interest rates rather than the benchmark rate, meaning that even if the benchmark rate is lowered, bond prices could still decline if market rates rise.
When engaging in OTC bond transactions, investors should also verify the difference between the market average rate and the actual trading yield. OTC bonds often reflect various transaction costs from brokerage firms, leading to purchases at prices higher than the market average, which can result in immediate evaluation losses.
Furthermore, it is advisable to compare whether similar bonds are being traded on exchanges. While exchange-traded bonds may be priced lower than OTC bonds, insufficient bids may hinder successful transactions.
The FSS stated, "We will continue to provide information on disputes related to financial investment products and investor precautions, and we will strengthen investor protection through institutional improvements when necessary."
* This article has been translated by AI.
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