[Geuman Report] "Inclusion in the World Government Bond Index, 81 Trillion Won Investment Inflow Expected"

Large-scale Investment Inflow Expected from Korea's Inclusion in the World Government Bond Index (WGBI)
Reduction in Financing Costs for Domestic Economic Entities
Supports Stable Mid- to Long-term Fiscal Management by the Government

Choi Sang-mok, Deputy Prime Minister for Economy and Minister of Economy and Finance, is briefing on October 9 at the Government Seoul Office in Jongno-gu, Seoul, regarding South Korea's inclusion in the World Government Bond Index (WGBI). Photo by Yonhap News

It is forecasted that $56 billion (81 trillion won) worth of government bond investments will flow in as South Korea is included in the World Government Bond Index (WGBI) starting November next year.

According to the Financial Stability Report released by the Bank of Korea on the 24th, FTSE (Financial Times Stock Exchange) Russell announced on October 9th that South Korea will be included in the WGBI from November 2025.

The WGBI is a representative global bond index used as a benchmark by major pension funds and others. As of last month, a total of 26 countries are included, and the scale of funds tracking the index is known to be about $2.5 trillion (3,623 trillion won).

South Korea was first listed as a watchlist country for WGBI inclusion in September 2020, and since then, policy authorities have steadily pursued various institutional improvements to enhance market accessibility, leading to the final inclusion this time.

The Bank of Korea expects that South Korea's inclusion in the WGBI will contribute to reducing volatility in the financial and foreign exchange markets through the inflow of government bond investment funds from global investors with long-term investment tendencies, such as major pension funds.

Looking at countries such as China, Malaysia, Mexico, and Israel, which were included in the WGBI ahead of South Korea in recent years, foreign investment in government bonds generally expanded after the inclusion announcement. In South Korea's case as well, considering the estimated scale of WGBI tracking funds and the inclusion ratio, it is expected that about $56 billion worth of government bond investment funds will flow in.

Given that South Koreans' overseas securities investments continue to outperform foreigners' domestic securities investments, the inflow of these funds is also analyzed to contribute to stabilizing foreign exchange supply and demand.

A Bank of Korea official emphasized, "If the inclusion in the WGBI diversifies investors in South Korean government bonds and expands a stable demand base, it will reduce the funding costs for domestic economic agents and help the government's stable long-term fiscal management."