South Korea will likely be a part of FTSE Russell’s World Government Bond Index next year if not in September, and that’s likely to bode well for the nation’s bonds, according to BNP Paribas SA.
(Bloomberg) — South Korea will likely be a part of FTSE Russell’s World Government Bond Index next year if not in September, and that’s likely to bode well for the nation’s bonds, according to BNP Paribas SA.
The nation has been working toward the index inclusion for decades. However, its latest round of efforts “look different”, said EJ Ethan Seo, the head of global markets at BNP in Seoul. The government had been focused on giving broader directions but now their various divisions including the tax office are communicating directly with the bank’s working-level employees to clear any operational trading barriers, Seo said.
The index compiler is due to release an update on its debt gauges in September after deciding to keep Korea on the watch list at its March review. The country first appeared on FTSE’s watch list for possible inclusion in its key global bond index in September 2022.
The bond index inclusion is expected to attract more foreign investments in the economy that’s slowing due to weakening global demand for its exports. South Korea’s finance ministry estimates inflows as much as 90 trillion won ($67.6 billion).
BNP sees a 50% chance for the nation’s bonds to be added to the index in the next FTSE review. That compares to some analyst views for an inclusion this year, but for Seo, timing isn’t that important.
“What’s important is that we’re headed there,” Seo said adding that his company has been ramping up infrastructure support for foreign clients, including an electronic trading platform. There’s also been an increase in client inquiries, including those from new passive funds, ahead of the anticipated inclusion, he said.
Seo, who is a 23-year banking veteran with stints at JPMorgan Chase & Co. and Citibank Korea, is currently a member of an expert council under the local FX Committee advising the government on its latest drive to reform the market.
The index inclusion combined with lurking credit risks linked to Korea’s housing market, and a potential policy pivot as early as the fourth quarter amid easing inflation, should be beneficial for the nation’s sovereign bonds, Seo said. That could bring 10-year yield below 2.5% next year, he added.
South Korea’s 10-year yield closed down seven basis points at 3.34% on Friday after rising in the previous eight sessions.
Korea Expands Currency Market Access to Aid Index Inclusion Bids
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