[News Terms] Advanced Sovereign Bond Club ‘WGBI’ Enhancing National Credibility

The World Government Bond Index (WGBI) is considered one of the world's top three bond indices, alongside the Bloomberg Barclays Global Aggregate Index and the JP Morgan Emerging Market Bond Index.

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It is managed by FTSE Russell, a subsidiary of the London Stock Exchange (LSE), and currently includes government bonds from 25 major countries such as the United States, the United Kingdom, and China. The assets tracking this index amount to approximately $2.5 trillion.

Inclusion in the WGBI is finalized after a review process of more than six months following the designation as a watchlist country through consultations with FTSE Russell. Typically, there is a time lag of about two years from being listed as a watchlist country to actual inclusion in the index.

To be included in this index, a country must meet both quantitative criteria?such as government bond issuance outstanding and credit rating?and qualitative criteria related to market accessibility. The quantitative criteria require an issuance outstanding of at least $50 billion nominal value and a credit rating of A- or higher by S&P. The qualitative criterion, market accessibility, is a subjective evaluation by FTSE regarding any inconveniences for foreign investors, and the country must be rated at Level 2 (Lv2), indicating no inconveniences. In the recent evaluation, Korea met the quantitative criteria but received a Level 1 (Lv1, indicating some inconveniences) for market accessibility, thus maintaining its status as a watchlist country. Among the world’s top 10 countries by nominal GDP, only Korea and India are not included in the WGBI.

Recently, China was included in the WGBI in March 2021 after being listed as a watchlist country in March 2019, and New Zealand was finally included in March 2022, three years after receiving a Level 2 market accessibility rating in March 2019. In the announcement on the 27th (local time), Portugal, which had been excluded from the WGBI in 2012 due to a credit rating downgrade, was re-included. Additionally, Switzerland, which had been listed as a watchlist country since September 2021, was removed from the watchlist.

Meanwhile, FTSE Russell stated in its announcement of the FTSE bond market country classification that "Korea has made meaningful progress in improving access to its government bond market over the past six months" and that it "will continue to closely monitor the positive improvements in the Korean bond market until the country classification in September."

FTSE Russell evaluates foreign investors’ access to government bond markets every March and September to decide on inclusion. Accordingly, Korea, which was first listed as a watchlist country in September 2022 for potential inclusion in the WGBI, is expected to have its inclusion decision made this coming September. If Korean government bonds are included in the WGBI, it is anticipated that foreign capital inflows into the government bond market will increase and the credibility of Korean government bonds will be enhanced. According to Meritz Securities, inclusion in the WGBI is expected to bring in $60 billion (approximately 80 trillion KRW) of funds into the domestic government bond market.