Korea's inclusion in FTSE Russell's bond index to attract $56B

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Korea's inclusion in FTSE Russell's bond index to attract $56B

Published: 09 Oct. 2024, 17:46 Updated: 09 Oct. 2024, 19:02

JIN EUN-SOO
jin.eunsoo@joongang.co.kr

Finance Minister Choi Sang-mok [MINISTRY OF ECONOMY AND FINANCE]

Korea will join FTSE Russell's key global bond index next year, potentially attracting tens of billions of dollars to lower the country's borrowing cost and boost the won.

The inclusion will be effective from November 2025 followed by one year of a phase-in period.

FTSE Russell's World Government Bond Index (WGBI) is one of the world's leading bond indexes that consists of 26 countries' sovereign bonds next to Bloomberg-Barclays Aggregate Bond Index and JP Morgan Government Bond Index-Emerging Markets.

The index is tracked by global funds that are worth more than $2.5 trillion.

When included, Korea's government bonds will represent approximately 2.22 percent of the index, meaning that some 75 trillion won ($56 billion) worth of national bonds will make inroads to Korea.

“The benefit of the 75 trillion won worth of foreign investments that will enter Korean market from the latter half of next year will be directed to the people of Korea,” Korean Finance Minister Choi Sang-mok said in a briefing Wednesday.

“It will stabilize base rates, reducing the borrowing cost for individuals and companies. It will also enable stable management of the national finances in the mid to long term based on the bond market. The influx of foreign investors' capital will also stabilize the foreign exchange market.”

The influx of between $50 billion and $60 billion into the Korean market due to the inclusion in the index is expected to lower the country's treasury rates by up to 0.6 percentage point, according to a report by the Korea Institute of Finance released last year.

The reclassification of Korea comes after two years of trying to improve the accessibility of its sovereign bonds to foreign investors when it was first placed on the Watch List of the London-based global index provider in 2022. Other criteria such as the size of the issued bonds and credit rating of the country were fulfilled.

In July, Korea started extending the trading hours of the won from 3 p.m. to 2 a.m. the next day to attract more foreign investment. It also set up a settlement system with Euroclear and Clearstream to allow foreign investors to trade Korean bonds without having to open an account with local banks.

“Since being placed on the FTSE Fixed Income Country Classification Watch List in September 2022, several initiatives intended to improve the accessibility of South Korean government bonds for international investors have been implemented by South Korean market authorities, which have facilitated the fulfillment of the criteria for a Market Accessibility Level of 2,” FTSE Russell said in a release Tuesday.

The reclassification has been one of the main financial agenda items for the current Yoon Suk Yeol administration.

“The latest achievement is a result of the government's strong push toward a system overhaul for better access to foreign investment and communication effort as well as the global society's high evaluation of the Korean economy's solid fundamentals,” the presidential office said Wednesday.

“The government will continue to actively communicate with global investments to keep monitoring and supplementing the related systems so that the country's inclusion in the World Government Bond Index goes as planned.”

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]