WGBI,
Three Tranches Left
South Korea's WGBI inclusion has completed 5 of 8 tranches · Foreign holdings of Korean Treasury Bonds have risen less than the expected path · Yet the maturity profile of incoming money is getting longer
WGBI inclusion is not a one-off event in which foreign money arrives all at once. It is a multi-month process in which global bond portfolios increase their allocation to Korean government bonds · So far, inflows have come more slowly than expected, and the next test is the flow through September, October and November.
Why WGBI matters
WGBI (World Government Bond Index), compiled by FTSE Russell, is one of the major benchmarks widely used in global bond markets · It consists of sovereign bonds from 26 countries, with an estimated USD 2.5 trillion in assets tracking the index · South Korea is the ninth-largest market among the included countries.1,4
The easiest analogy is equities · Just as a fund tracking the KOSPI 200 holds stocks according to index weights, global bond funds that track or benchmark against the WGBI adjust portfolios with the index's country and bond weights in mind.
FTSE Russell is adding Korean government bonds through 8 equal monthly tranches from April through November 2026 · One-eighth of the full inclusion is reflected each month.1
Foreigners bought KRW 41tn. Why did holdings rise only KRW 33.4tn?
Foreign investors' cumulative net purchases of Korean Treasury Bonds from March through August reached KRW 41.0tn · But because KRW 7.6tn of existing bonds matured over the same period, iM Securities estimates the actual increase in holdings at KRW 33.4tn.2
If KRW 10tn of existing government bonds mature and the proceeds are used to buy KRW 10tn of new bonds, KRW 10tn of purchases is recorded but total holdings do not increase · That is why, when assessing the WGBI effect, the increase in holdings after subtracting redemptions is more useful than looking at net purchases alone.
June is the clearest example · Of KRW 12.84tn in net purchases, KRW 7.60tn overlapped with maturities, leaving an actual increase in holdings of only about KRW 5.2tn.2
However, the KRW 33.4tn figure starts from March · The original report labels the measurement window as Mar. 31-Aug. 31, but its monthly figures include the full month of March · Because March predates the official phase-in, this note uses KRW 29.8tn for April-August as its main reference · The difference between the two figures is addressed in the next section.2
Inflow momentum has clearly slowed
The increase in foreign KTB holdings peaked at KRW 14.12tn in May, then declined for three consecutive months: KRW 5.23tn in June → KRW 1.57tn in July → KRW 0.44tn in August.2
In August, foreigners were net buyers on only 8 of 20 trading days · They had been net sellers of KRW 1.94tn through Aug. 28, before KRW 2.37tn of net purchases on Aug. 31 alone reversed the monthly figure · September will show whether this was primarily month-end rebalancing · A sustained recovery in buying did not materialize even as USD/KRW fell by 67.5 won during the month, meaning the won strengthened.2,6
A comparison with the Financial Supervisory Service's statistics for all listed bonds shows that in April-May, the increase in KTB holdings (KRW 22.5tn) exceeded net investment in the overall bond market (KRW 9.2tn) by a wide margin · In June-July, the two flows converged to KRW 6.8tn and KRW 6.9tn, respectively.
This may suggest that some reallocation within existing KRW bond portfolios occurred during the early phase-in period · However, the two datasets differ in coverage, methodology and timing, so the entire gap cannot be interpreted as rotation between bond categories · The fact that government bonds already accounted for 94.9% of foreign investors' listed-bond holdings at end-June also suggests that the room for further portfolio reallocation may be limited.2,5
iM Securities estimates cumulative inflows over April-November at KRW 70-90tn, with a central estimate of about KRW 75tn · The total itself is in line with the government's "more than KRW 75tn" projection announced when inclusion was confirmed, but the time-path assumption that allocates that total in proportion to phase-in progress is iM's own framework.2,4
iM Securities' original report includes March, when front-running purchases ahead of the official inclusion may have occurred, and therefore assesses KRW 33.4tn as about 71% of its expected path · To align the calculation with the formal inclusion schedule, this note separately calculates only April-August, yielding KRW 29.8tn, or about 63%.2
The two figures differ because of their measurement windows. Neither is an inflow ratio guaranteed by WGBI.
Less came in, but it bought longer
The slowdown is clear in total inflows, but the picture changes when holdings are viewed by maturity · From March through August, foreign investors reduced KTBs with less than one year remaining by KRW 15.36tn, while increasing holdings with one year or more remaining by KRW 48.77tn · Netting the decline against the increase yields KRW 33.4tn, on the same measurement basis as the previous section.2
FLOW
DURATION
This looks less like foreigners leaving Korean government bonds and more like a rotation out of short-dated KTBs and into the medium-to-long end of the curve.
When foreign buying shifts toward medium- and long-dated bonds, the same amount of inflow has a larger impact on supply-demand conditions at the long end · All else equal, this can absorb some upward pressure on 10-year and 30-year yields · The WGBI effect therefore needs to be assessed not only by "how much came in" but also by "which maturities were bought."
Long-term KTB yields are one component of the discount-rate environment for domestic assets, which is why this matters even for investors who do not own bonds.
The questions for the final three months
iM Securities presents three scenarios for September-November · Under the base case, average monthly net purchases would be roughly KRW 5-7tn.2
What changes after November?
November is not the point when foreign demand disappears · More precisely, it is when the incremental demand associated with the eight-month phase-in comes to an end · Regular rebalancing by WGBI-tracking funds, reinvestment of redemptions and demand driven by changes in Korea's index weight will continue afterward.1,2
At the same time, KTB supply in 2027 remains large · Under the budget proposal, gross issuance is KRW 222.8tn and net issuance is KRW 96.3tn · Net issuance is lower than the previous year, but higher refinancing issuance means the gross supply burden does not fall by much.3
The incremental purchase effect from the April-November phase-in ends
Demand from WGBI-tracking and benchmarked assets remains
2027 gross issuance KRW 222.8tn · Net issuance KRW 96.3tn3
December maturity-by-maturity KTB issuance plan · Especially the long-end share · Ministry of Finance and Economy
The question after November is not whether foreign demand falls to zero, but how stably Korean government bonds remain embedded in global portfolios once the phase-in is complete.
The WGBI effect has not been absent.
The money came in more slowly than expected, and the money that did arrive moved into longer-dated government bonds.
For the final three tranches, the key is not simply the amount, but whether month-end buying repeats · whether duration continues to extend · whether that demand actually helps contain medium- and long-term yields.