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Korean sovereign bonds close to global benchmark index inclusion

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The Ministry of Economy and Finance building in Sejong / Yonhap

The Ministry of Economy and Finance building in Sejong / Yonhap

By Yi Whan-woo

Korea's sovereign debt could be included in the World Government Bond Index (WGBI), a global benchmark that measures the performance of state-issued bonds, according to the government and financial industry sources, Thursday.

Managed by Financial Times Stock Exchange (FTSE) Russell, the WGBI trades an estimated $2.5 trillion worth of government bonds issued by 23 major countries.

The question of whether Korea can be included in the index has attracted attention in Seoul's financial markets, as it is anticipated to attract billions of dollars in foreign capital inflows.

"Korea meets conditions to join the WGBI," Kwak Sang-hyun, director of the Government Bond Policy Division at the Ministry of Economy and Finance, said during a webinar hosted by Euroclear, an international central securities depository (ICSD) based in Belgium.

The director noted that transactions involving Korean bonds will be facilitated via Euroclear starting June 27.

Utilizing an ICSD for bond market transactions was crucial in advancing Korea's bid to join the WGBI.

"The finance ministry is working closely with FTSE Russell as well as global investors, and hopefully Korea will be included the WGBI in the near future," Kwak said.

One bond market analyst said Korea has been making progress in fulfilling the requirements for WGBI inclusion and that the country "is believed to have met most of the conditions required by FTSE Russell."

The analyst pointed out that Korea announced a range of other measures to ease regulations concerning foreign investors.

Those measures include extending foreign exchange trading into London hours, eliminating the investor registration certificate scheme for foreign investors and opening up the onshore currency market to registered foreign institutions.

Korea was added to the WGBI watch list in September 2022.

It failed to join the index in March when FTSE Russell carried out one of its biannual reviews on countries seeking inclusion.

Korea and India are the only countries among the world's top 10 economies in terms of nominal gross domestic product that have yet to be included in the bond index.

Ahead of the next review scheduled for September, FTSE Russell said it will "continue to monitor the positive developments in the Korean government bond market toward the successful fulfillment of the criteria for Market Accessibility Level 2."

FTSE Russell categorizes a country's bond market into three levels — from 0 to 2 — based on accessibility to investors. Only markets classified as Level 2 are eligible for WGBI inclusion.

Yi Whan-woo


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