KBSTAR has launched four new ETFs on Korea Exchange.
The funds provide unleveraged and leveraged exposure to a steepening or a flattening of the Korean Treasury yield curve.
The funds are the first ETFs in Korea to enable investors to express views on expected changes in the shape of the Korean Treasury yield curve.
The ETFs provide unleveraged and leveraged exposure to a steepening or a flattening of the Korean Treasury yield curve.
The slope of a yield curve is typically influenced by factors such as central bank monetary policy, market expectations on policy action, and inflation expectations.
The funds
The KBSTAR KRX F-KTB Steepener ETF (342500 KS) tracks the F-KTB 3Y10Y Yield Curve Steepening Index.
The index consists of two components: a long position in three-year Korean Treasury bond futures and a short position in ten-year Korean Treasury bond futures. The strategy is set up such that a one basis point increase in the steepness of the curve (the difference between ten-year and three-year yields) corresponds to an increase of approximately one basis points for the index.
The KBSTAR KRX F-KTB Steepener 2X ETF (342600 KS) provides double the daily return on the F-KTB 3Y10Y Yield Curve Steepening Index, thereby offering a gain of two basis points for every one basis point increase in the steepness of the yield curve.
The KBSTAR KRX F-KTB Flattener ETF (342610 KS) tracks the F-KTB 3Y10Y Yield Curve Flattening Index.
The index uses the reverse strategy compared to its steepening counterpart: it consists of a short position in three-year Korean Treasury bond futures and a long position in ten-year Korean Treasury bond futures. A one basis point decrease in the steepness of the curve (between ten-year and three-year yields) corresponds to an increase of approximately one basis points for the index.
The KBSTAR KRX F-KTB Flattener 2X ETF (342620 KS) provides double the daily return on the F-KTB 3Y10Y Yield Curve Flattening Index, thereby offering a gain of two basis points for every one basis point decrease in the steepness of the yield curve.
The unleveraged steepening and flattening ETFs come with expense ratios of 0.15%, while the leveraged funds cost 0.20%.
Leveraged ETFs are best held for a short to medium-term period and are aimed at professional investors who understand and are willing to bear the risks involved.