Korea Bond Market Update: WGBI Flows and Implications

South Korean Treasury Bond (KTB) yields have surged to post-pandemic highs amid hawkish central bank signals and energy price shocks. While domestic institutional demand is retreating, strong foreign inflows ahead of WGBI inclusion are acting as a vital market stabilizer.

Key Takeaways

• 1.KTB yields have reached post-pandemic highs, trading significantly above the BOK policy rate due to hawkish central bank commentary and geopolitical energy shocks.
• 2.Domestic demand for KTBs from insurers and asset managers is declining due to equity market rotation and regulatory changes delaying discount rate normalization.
• 3.Strong foreign inflows driven by WGBI inclusion are providing a critical structural offset to weak domestic demand, particularly in long-duration bonds.

Table of Contents

• Backdrop
• Subdued domestic demand for KTBs
• First-month WGBI inflow update
• Supply-side update
• Outlook and potential implications for broader rates markets

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