Foreign buying, holdings of S. Korean government bonds rise after WGBI entry

▲ This graphic shows South Korea's government bonds. (Yonhap)

WGBI inclusion-capital inflow

Foreign buying, holdings of S. Korean government bonds rise after WGBI entry

SEOUL, May 1 (Yonhap) -- Foreign investors increased their purchases and holdings of South Korean government bonds in the month following the country's inclusion in the World Government Bond Index (WGBI), supporting the local debt market, data showed Friday.

South Korea began a phased, eight-month entry into the index on April 1. The WGBI tracks sovereign debt from more than 20 major economies, including the United States, Japan and China

Between March 30 and April 27, foreign investors bought Korean Treasury bonds worth 10 trillion won (US$6.8 billion) on a trade basis and 7.9 trillion won on a settlement basis, according to government and industry data.

Foreign holdings of government bonds rose 3.3 percent to 306.74 trillion won as of April 29, from 297.16 trillion won on March 30, data from Yonhap Infomax showed.

Demand was concentrated in mid- to long-term maturities. Foreigners were the largest net buyers of five-year bonds, totaling 3.56 trillion won between March 31 and April 29, according to Shinhan Securities Co.

Net purchases of five-year bonds were followed by those of 10-year bonds (1.89 trillion won), 30-year bonds (1.8 trillion won), two-year bonds (1.69 trillion won) and 20-year bonds (1.03 trillion won).

South Korea's inclusion in the WGBI is expected to draw 74 trillion won to 89 trillion won in passive inflows this year.

Kiwoom Securities Co. said passive funds have begun to enter the market, although active inflows have fallen short of expectations.

"The rising share of long-duration bonds in foreign holdings suggests funds are likely to remain invested longer, supporting market stability," the brokerage said.

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