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← Back to List2026.08.02#MacroeconomicSurvival#Duration

[Macroeconomic Survival Ch. 1] I Expected Slower Growth in Korea, but the Market Moved on a Different Clock ​

An investor looking over a rain-darkened Seoul and considering Korea's slower-growth future

A choice built on slower growth in Korea ​

When I bought the RISE KIS 30-Year Korean Treasury Bond Enhanced ETF, I expected Korea's future growth rate to fall below that of the United States. Despite the English word Treasury often evoking US government bonds, this fund invests in 30-year bonds issued by the Korean government.

Korea had achieved decades of extraordinary growth. I did not believe it could continue running at the same speed forever. As its growth engines weakened, I expected the Korean economy to slow before the US economy and the Bank of Korea to cut rates before the Federal Reserve.

My thesis fit neatly into a single line:

Slower Korean growth → earlier Korean rate cuts → lower long-term Korean yields → higher prices for 30-year Korean government bonds

I tried to turn my pessimism about Korea's long-run growth into a capital gain from bonds. The logic seemed simple and clear, which made the missing conditions harder to see.

I underestimated one small word: “Enhanced” ​

My reason for choosing 30-year bonds was straightforward. When interest rates fall, longer-maturity bonds tend to rise more.

Bond prices generally move in the opposite direction from market rates. When newly issued bonds offer more interest, older bonds with lower coupons must become cheaper to attract buyers. When market rates fall, those older higher-coupon bonds become more valuable.

The measure that approximates a bond's sensitivity to changes in rates is duration. A longer duration magnifies the benefit of falling rates, but it also magnifies the damage from rising rates.

My chosen fund contained another lever. “Enhanced” meant that the ETF held three Korean 30-year government bonds and borrowed an additional amount equal to roughly 30% of the portfolio to buy more of the same basket. The structure could amplify gains when yields fell and losses when they rose.

I did not think I was buying a leveraged product. Yet the 30-year maturity had already created one lever through duration, and the Enhanced structure placed another on top of it.

Growth slowed, but rates did not fall ​

The biggest flaw in my reasoning was compressing “growth slows” and “rates fall” into a single step.

Downside risks to Korean growth were indeed increasing in 2022. Inflation, however, was the more urgent problem. Even as the Bank of Korea projected slower growth, it continued tightening because inflation remained far above its target. By November 2022, the base rate had reached 3.25%.

I had omitted the variables between slower growth and lower rates. When inflation is high, a central bank cannot easily cut rates simply because the economy is weakening. A falling won, rapid tightening by the Federal Reserve, financial stability, and Korea's household debt all mattered.

I had compared the long-run growth rates of Korea and the United States. Bond prices were not waiting exclusively for that distant future. They were reacting first to the inflation, exchange rates, and central-bank decisions directly in front of them.

I was looking at a distant destination while the market reacted to immediate inflation and currency pressures.

Three different funds, one hidden bet ​

The Korean 30-year government bond ETF was not the only bond fund in my account.

I also held BND, which covers the broad US investment-grade bond market, and LQD, which holds US investment-grade corporate bonds. A US aggregate bond fund, a US corporate bond fund, and a Korean government bond fund looked diversified across products, countries, and issuers.

In 2022, however, all three moved in the same direction.

  • BND returned approximately -13.1% for the year.
  • LQD returned approximately -18.0%.
  • The Korean 30-year fund, with its long duration and additional borrowing, was also hit hard by rising rates.

Only then did I see the common exposure beneath the product names. BND carried intermediate duration. LQD carried longer duration as well as corporate credit risk. The Korean 30-year fund carried far longer duration and the Enhanced borrowing structure. I had divided my money among three products, but they all depended on one belief: interest rates would not rise dramatically.

After dividing a portfolio, identify the common force capable of breaking its holdings at the same time.

An early forecast can hurt for a long time ​

The view that Korea's growth engines are weakening is not necessarily wrong. Once inflation stabilizes and growth slows sufficiently, the Bank of Korea may cut rates. If long-term yields then decline, 30-year government bond prices may rise.

“Eventually” is not a complete investment thesis.

Even if the final direction of rates is correct, long-duration bonds can suffer severe losses if rates first move higher. No one knows whether a thesis will take months or years to materialize. If the interim decline forces an investor to exit, the eventual vindication belongs to someone else.

I had focused on the destination without calculating the path, the cost, or the time I would need to endure. I needed a structure that could survive a forecast arriving far too early.

I moved somewhere I could afford to wait ​

The lesson of 2022 was that bonds offer different kinds of safety. Credit safety asks whether the US or Korean government will repay its obligations. Price safety asks whether the market value will remain stable during the period in which I need to hold or sell the asset.

A long-term government bond can be highly secure in credit terms and still experience enormous price swings because of its duration. What I actually needed was low credit risk and stability for money that might fund living expenses in the nearer future. I had mistaken one kind of safety for both.

With rates still rising, it was not time to add even more duration. I first needed a place where the next decision did not have to be rushed.

I turned away from long-duration bonds and began studying SGOV, Korean CD-rate ETFs, and cash management accounts. I traded the promise of spectacular capital gains for short maturities and interest income that adjusted upward more quickly.

The next chapter covers how cash, an asset I had barely considered an investment, became a shelter in my account.

Sources consulted ​

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