Offshore Trading in Korean Bonds Surges Amid WGBI Inclusion

Offshore trading in South Korean bonds has witnessed a significant surge in recent months, with September marking a substantial increase in transaction volumes. This trend can be attributed to several factors, including the extension of trading hours and ease of access for overseas investors, as well as the ongoing reforms and improvements in the foreign exchange market structure.

The extension of trading hours and the simplification of access for overseas investors have played a pivotal role in the surge of offshore trading. These measures have allowed international investors to more conveniently engage with the Korean bond market, leading to an increase in both the number of participants and transaction volumes using the omnibus account.

The ongoing reforms and improvements in the foreign exchange market structure have also contributed to the surge in offshore trading. The Korean government has made significant strides in enhancing the accessibility of its government bonds for international investors, including the opening of an omnibus account linked with international central securities depositories. These efforts have facilitated the fulfillment of the criteria for a Market Accessibility Level of 2, as noted by FTSE Russell.

The increase in offshore trading volume in Korean bonds has a direct impact on the country's eligibility for the World Government Bond Index (WGBI). As South Korea seeks to attract global funds and billions of dollars worth of fresh capital, the surge in offshore trading signals the country's progress in meeting the stringent requirements for inclusion in the WGBI.

The specific reforms implemented to facilitate this surge in offshore trading and align with WGBI criteria include the extension of trading hours, the simplification of access for overseas investors, and the opening of an omnibus account linked with international central securities depositories. These measures have been instrumental in attracting international investors and increasing the liquidity of the Korean bond market.

The growth in offshore trading volume has a positive influence on South Korea's chances of inclusion in the WGBI by the targeted date. As the country continues to make progress in meeting the WGBI's requirements, the surge in offshore trading volumes demonstrates the growing interest and confidence of international investors in the Korean bond market.

Despite the recent surge in offshore trading volume, South Korea still faces certain challenges in fully meeting the WGBI's requirements. These include resolving issues related to tax exemptions and the Legal Entity Identifier (LEI), as well as addressing the practical feedback of global bond investors. However, the Korean government remains committed to actively addressing these challenges and ensuring a smooth inclusion into the WGBI.