Foreign investors sell Korean bonds in August, ending 3½-year buying streak
In August, foreign investors became net sellers of Korean bonds, marking the first monthly net outflow in roughly three and a half years.
Industry data released on Sunday indicate that foreign investors reversed their long-standing buying trend in Korean bonds during August, posting a net sale of 839.7 billion won. This is the first monthly net selling episode in roughly three and a half years. Over the year to September 11, they have still been net buyers, accumulating 63.26 trillion won, but that figure is 35.2 percent lower than the same period a year earlier.
Their total holdings slipped from a record 356.6 trillion won on July 24 to 343.6 trillion won by September 2, the largest decline over a comparable 27-trading-day span in the past five years. The change is driven by the erosion of the yield premium that Korean bonds once offered over U.S. assets once currency hedging is applied, with the arbitrage spread moving from a positive 68.3 basis points at year-end to minus 30 basis points by September 10. Passive inflows linked to Korea’s phased inclusion in the World Government Bond Index have partially offset the selling pressure.
Why it matters
The shift signals reduced foreign appetite for Korean debt, which could affect the country's financing costs and market stability.
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