Korea’s entry into FTSE’s global govt bond index may draw $2 bn per month

2020.01.14 14:35:29 | 2020.01.14 14:35:54

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A monthly average of $1.5 billion to $2 billion in foreign capital could be added to the Korean market if Korean papers join the World Government Bond Index (WGBI), one of the world’s three major bond indexes, a study said.

The WGBI measures the performance of sovereign bonds of 23 countries including the U.S., Japan, the U.K., Germany and France, and serves as a broad benchmark for global investors. It is managed by FTSE Russell, a provider of multi-asset indexes and analytic solutions under London Stock Exchange Group (LSEG). It is one of the leading bond indexes in the world together with Bloomberg Barclays Global Aggregate bond index and JP Morgan Global Aggregate Bond Index.

Since around $2 trillion track the index, the Korean bond market could draw in $36 billion in the first two years after joining the international benchmark, according to DB Financial Investment report.

Circulating Korean treasury bonds dated one year or older are worth $431 billion on an exchange rate of 1,160 won per U.S. dollar, which could contribute to 1.8 percent in the weighted index, it said.

“The addition to the WGBI would not have an immediate impact on the Korean market because of one-year grace period,” said DB Financial analyst Moon Hong-chul. “But the entry could lead to a fall in bond yield by 8 to 13 basis points and foreign money inflows in currency swap market.”

The government pitched for membership to the index in 2009 but without success. It is advised to keep the tax code consistent to gain more confidence from foreign investors.

Moon observed the Korean debt market bottoming out.

By Ahn Gap-sung and Choi Mira

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