Foreigners net sell S.Korean bonds for first time in four years

Foreign investors dumped South Korean bonds in Janaury, becoming net sellers of the securities for the first time in four years as they booked profits on drops in yields.

Foreigners have sold a combined net 3.2 trillion won ($2.6 billion) in the Korean won-denominated bonds in the first 30 days of January, cutting their bond holdings to 222 trillion won.
 
The offshore investors were last net sellers of local bonds in January 2019, according to data from Korea's Financial Supervisory Service. 

DROP IN INTEREST RATES BOOSTS NET SALE OF BONDS

Foreigners have rushed to sell as the bond yields in Korea declined early this year, market watchers say.

The bond yields sharply rose during the second half of the last year, due to concerns over a slowdown in real estate project financing and issuances of high-yield bonds by local banks and state-owned Korea Electric Power Corp.

But the yields have plunged since the start of January on expectations that the Bank of Korea (BOK) will slow its rate hike pace, after US Federal Reserve Chairman Jerome Powell suggested a slowdown in its tightening at the end of last November.  

The three-year Korean treasury bond yield has remained below the policy interest rate since Jan. 13, when the central bank raised the annual rate to 3.50%.

Many of the bonds sold this month were Korean treasury bills and monetary stabilization bonds with short-term maturities, said DB Financial Securities analyst Moon Hong-cheol. 

The net selling of bonds won’t continue as a long-term trend, said Hana Securities analyst Kim Sang-hoon.

Kim said foreign investors will return as net buyers when Korea stops rate hike cycles and the FTSE Russell, a global index provider, adds the country to the World Government Bond Index (WGBI). Korea was placed on the watch list for potential inclusion in the index last September. 

Write to Mi-Hyun Jo at mwise@hankyung.com
Jihyun Kim edited this article.