Following South Korea’s highly anticipated inclusion in the FTSE World Government Bond Index (WGBI), foreign investors significantly boosted their exposure to South Korean government bonds during the initial month, marked by substantial increases in both net purchases and overall holdings.
Recent government and industry data reveal that foreign investors acquired a net 10 trillion won ($6.8 billion) in Korean Treasury bonds on a trade basis between March 30 and Monday. When calculated on a settlement basis, these net purchases amounted to 7.9 trillion won, demonstrating strong investor confidence.
The momentum of these capital inflows steadily accelerated throughout the month. Net purchases began at 4.4 trillion won in early April, climbed to 7.7 trillion won by mid-month, and further expanded to 8.5 trillion won by the third week, indicating sustained growth.
Correspondingly, foreign holdings of these bonds also saw a notable increase. According to Infomax, outstanding balances grew by 3.3 percent, reaching 306.74 trillion won as of Thursday, up from 297.16 trillion won just a month prior.
While the overall volume of buying has been slightly below initial forecasts following the WGBI inclusion, market participants suggest this trend signals stable, longer-term positioning strategies by foreign investors, underscoring confidence in South Korea’s bond market.
Korea’s full WGBI inclusion is projected to attract significant passive inflows, estimated between 74 trillion won and 89 trillion won this year. Given the eight-month phased inclusion schedule, this translates to average monthly inflows of approximately 8 trillion won to 9 trillion won.
Analysts anticipate that index-tracking funds typically refine their allocations later in the year, suggesting ample opportunity for even stronger inflows into South Korean bonds during the upcoming months.
