Understanding Bond Investment in 2025: How Beginners Can Make Profits

In today’s turbulent financial markets, bonds are gaining attention among investors who seek both stability and profitability. With deposit yields being lackluster and stocks exhibiting high volatility and causing concern, bonds offer a perfect middle ground. Let’s explore specifically how the bond market is evolving in 2025 and which bonds beginners should start with.

What exactly are bonds that are attracting so much interest?

Many people ask, “What are bonds, and how are they different from savings accounts?” In simple terms, bonds are documents issued by governments, corporations, or public institutions when they need funds, promising to borrow money from investors. In return, investors receive fixed interest payments over a set period, and at maturity, they get back the principal.

For example, if you buy a 3-year Korean government bond, you’re lending money to the government. The government then pays approximately 3.32% interest over three years and returns the full principal at the end. Considering recent bank fixed deposits offer around 2%, it’s understandable why bond investments are attracting attention.

Especially in 2025, the average daily trading volume of the Korean bond market has reached about 25 trillion won, making bonds more accessible to individual investors.

There are two ways to make money with bonds

First: Regular interest income

When you buy bonds, you receive interest payments every 3 to 6 months. It creates a steady cash flow, similar to a salary. This is the biggest difference from stocks. Stocks may or may not pay dividends, but bonds with high credit ratings almost guarantee interest payments.

For example, a 3-year government bond(3.32%) and corporate bonds(with credit ratings of AA or higher) offer interest rates of 4-6%###, which are much better than savings accounts in the current interest rate environment.

Second: Capital gains

Bond prices fluctuate according to market interest rates. When rates fall, existing bonds’ prices rise; when rates rise, prices fall. For instance, if you buy a bond paying 3% interest at 10 million won, and market rates drop to 2%, the bond’s value increases. Selling it then can realize a capital gain.

This means bonds can be sold before maturity to generate profits, just like stocks.

Types of bonds: which should you choose?

Government Bonds: The safest choice

Issued by the government, these have the highest credit ratings. The yield on a 3-year Korean government bond is about 3.32%, which essentially means almost no risk of principal loss. If safety is your priority, start with government bonds.

( Special Bonds: Balance of safety and yield

Issued by public enterprises like Korea Electric Power Corporation or Korea Expressway Corporation. They offer slightly higher yields)e.g., Korea Electric Power 10-year bond at 4.10%###, while maintaining high safety. Suitable as a second step for beginner investors.

( Corporate Bonds: Higher yields but riskier

Issued by private companies, with interest rates varying significantly based on credit ratings. For example, Samsung Electronics)3-year bond at 3.95%### is relatively safe, but lower credit ratings mean higher interest rates and greater risk of bankruptcy. Always thoroughly check the issuer’s financial health before investing.

( U.S. Treasury Bonds: Global diversification

Recognized worldwide as the safest assets. The current 10-year yield is around 4.25%, higher than Korean bonds, with a top credit rating)AAA###. Holding dollar-denominated assets and benefiting from global diversification, many Korean investors are interested.

( ESG Bonds: Social value and returns combined

Bonds issued for eco-friendly and social responsibility purposes. Besides returns, they offer additional tax benefits, making them a rising global trend.

Bond vs. Fixed Deposit: What’s the real difference?

Many confuse these two. They may look similar on the surface, but their structures are entirely different.

Fixed deposits involve depositing money in a bank and earning a fixed interest until maturity. Under deposit protection law, principal up to 50 million won is guaranteed)expanded to 100 million won this year###. However, early withdrawal reduces interest, and you cannot earn higher interest if rates fall.

Bonds depend on the issuer’s creditworthiness. They are not protected by deposit insurance but can be bought and sold freely in the market before maturity. When interest rates decline, bond prices rise, allowing you to realize capital gains.

Think of fixed deposits as a “storage service,” and bonds as “tradeable assets.”

Three risks you must know when investing in bonds

Risk 1: Fear of rising interest rates

When rates go up, bond prices fall. For example, if you buy a bond paying 3%, and market rates suddenly rise to 4%, the existing bond becomes less attractive, and its price drops.

Mitigation: If you expect rates to rise, choose short-term bonds (1-3 years) or consider floating-rate bonds. If rate increases are modest, losses are limited.

Risk 2: Issuer’s default risk

If you buy a corporate bond and the company goes bankrupt? You might not get your principal back. This risk is higher with lower credit ratings.

Mitigation: Start with high-credit bonds like AAA or AA. Always review recent financial statements and credit reports of the issuer.

Risk 3: Currency risk with foreign bonds

Investing in overseas bonds like U.S. Treasury bonds exposes you to USD/KRW exchange rate fluctuations. If the dollar weakens, your returns in won could decline even if interest payments are received.

Mitigation: Use currency-hedged ETFs or limit overseas bond investments to diversify risk.

Practical: How to start bond investing?

Method 1: Direct purchase of individual bonds

Buy desired government or corporate bonds through securities apps, banks, or financial platforms. In this case, only interest income tax applies, and capital gains are tax-free. It offers transparency and higher yields but requires you to select bonds and analyze the market yourself.

Method 2: Bond funds

Invest in funds managed by asset managers that diversify across multiple bonds. They offer diversification with small amounts and professional management. However, fund management fees apply.

Method 3: Bond ETFs

Trade on stock exchanges like stocks, with real-time buying and selling. They feature low fees, high liquidity, and excellent diversification, making them the easiest entry point for beginners.

Who should consider bond investments?

Those needing regular cash flow

Freelancers or small business owners seeking additional income outside their salary will find the regular interest payments attractive.

Preparing for retirement

For post-retirement living expenses, steady income with low volatility is essential. Bonds meet this requirement perfectly.

If stock volatility worries you

Allocating 30-50% of your portfolio to bonds can significantly reduce overall volatility. Since stocks and bonds tend to move inversely, this is optimal for risk diversification.

Interested in tax savings

Investing directly in bonds means only paying interest income tax, with capital gains tax-exempt. Additionally, ESG bonds may offer tax benefits.

Want global asset diversification

Investing in overseas bonds like U.S. Treasuries allows holding dollar assets while spreading exchange rate risk.

2025 Bond Investment Checklist

1. Check credit ratings: AAA, AA are safe; avoid below BB if you’re a beginner.
2. Understand maturity structure: Choose short, medium, or long-term based on your financial plan.
3. Interest payment schedule: Confirm whether interest is paid quarterly, semi-annually, or annually.
4. Assess interest rate outlook: If rates are expected to rise, consider short-term bonds; if falling, long-term bonds may be better.
5. Compare fees: Fund and ETF fees can significantly impact long-term returns.
6. Review issuer’s financial health: Always check recent financial statements when buying corporate bonds.

Final thoughts: Why start bond investing in 2025 now?

Deposit rates are below expectations, and the stock market remains unstable. Bonds stand out during this period. They offer higher returns than savings accounts while maintaining much lower risk than stocks—an ideal “third option” for asset preservation.

Begin with safe products like government bonds or bond ETFs to gain experience, then gradually expand your portfolio with special and corporate bonds. As expectations for rate cuts grow, bond prices may rise further, making now the perfect time to seriously consider bond investments.