Foreigners own near 100 trillion won ($85 billion) in South Korean government bonds, with more than half held by central banks and sovereign funds for long-term investment.

According to the Korea Exchange, foreign investors held government bonds worth around 95 trillion won as of the end of June, or nearly 15 percent of circulating government papers.

Given the rapid increase, the ownership is expected to exceed 100 trillion won by early August.

Foreign appetite for Korean sovereign debt surged on the bond market rally amid bets on interest rate cut in near future and foreign exchange arbitrage from cheaper won against major currencies.

Korean government bonds held by foreigners had amounted to mere 4.2 trillion won or 2 percent of the total issues in 2006 but international investors, especially central banks and sovereign wealth funds across the world have rapidly increased their investment in Korean government debts in recent years. Foreign central banks accounted for 11 percent of total Korean government bonds held by foreigners as of the end of 2009 but the figure topped 50 percent in May 2016 and currently hovers around 53 percent.

The foreign investors also have increased buying in longer-dated debts. According to the Ministry of Economy and Finance, the average remaining maturity of Korean government bonds held by foreigners was 4.65 years as of the end last year, up from 3.03 years in 2011. The foreign investors previously had focused their investment in 3-year debts but are expanding out to mid-to-long term bonds. Currently, foreign investors from 47 countries have invested in Korean government bonds, up from 27 countries in 2007.

By Chung Seung-hwan and Cho Jeehyun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]