Foreigners Net Buy 10 Trillion Won in South Korean Treasuries After WGBI Entry

Foreign investors have net purchased more than 10 trillion won in South Korean Treasury bonds in the month since the country’s inclusion in the World Government Bond Index, officials said. The government is watching May — when the index weight rises — as a potential turning point for inflows and market supply-demand conditions.

The Ministry of Economy and Finance said it held the fifth meeting of its “WGBI standing inspection and investor outreach task force” on Tuesday at the Government Complex Seoul. It said foreigners’ net purchases of Treasury bonds totaled 10 trillion won on a trade-date basis from March 30 through April 27. On a settlement basis, net purchases were 7.9 trillion won from April 1 through April 27.

The ministry said WGBI inclusion has helped draw more long-term investors such as pension funds and has broadened demand for medium- and long-term maturities. Hwang Sun-kwan, director general of the Treasury Bureau, said, “Over April, global investors and our market infrastructure learned to work together and built valuable experience.”

Analysts cautioned that recent rate moves cannot be attributed solely to the WGBI effect. Treasury yields were relatively stable in April compared with major countries, but experts said easing Middle East tensions and a slowdown in the rise of international oil prices had a larger impact on the decline in yields.

Ahn Ye-ha, a researcher at Kiwoom Securities, said April’s yield decline could be read as a combination of steadier oil prices and foreign inflows, but added that “it may be difficult for that mix to hold going forward.” She said supply-demand conditions could weaken somewhat from April after May, given a higher share of long-term issuance and limited demand from insurers.

She added that oil prices also “carry the possibility of greater volatility or a renewed rise rather than further declines,” which could increasingly limit how far yields fall.

The government said it sees May as the first full test of the WGBI inclusion effect, as it has set May’s Treasury bond auction issuance at 19 trillion won, a level that could coincide with both inflows and shifting supply-demand conditions.

Hwang said, “As the WGBI inclusion weight rises in May, inflows are expected to begin from this week, so thorough preparation is needed.”

The ministry said it will continue to monitor foreign inflows through the task force and expand investor relations efforts to strengthen communication with the market.