World Treasury Bond Index Awakening to the Importance of Continuous Management of Private Sovereign Credit Risks

Korean government bonds were subject to observation, a step ahead of their inclusion in the World Government Bond Index (WGBI). WGBI is the world’s leading bond index, followed by the largest investment portfolios of global bond managers. When Korean government bonds are included in this index, foreign investment in Korean bonds will increase, as well as reduce sudden inflows and outflows of foreign funds, greatly contributing to the stability of foreign and foreign currency markets. domestic. This was also a major factor in the fact that the exchange rate won closing at 1430 gained 20 per dollar yesterday, down 8 70 gained from the previous day, stopping the runaway pattern.

FTSE Russell, which manages WGBI, classified Korea as a country to watch on the 29th and evaluated that “the Korean government has the possibility of raising the level of the foreign exchange market by announcing a tax-exempt scheme for foreign government investment and MSB and policy to boost the foreign exchange market.” After a review period of at least six months, a final decision on whether to transfer should be made in March or September next year.

When Korean government bonds are included in the index, foreign investment in government bonds of 50 to 60 trillion won is expected to flow in annually. The total global investment following the WGBI is $2.5 trillion, and the share of Korean government bonds is estimated to reach 2.0 to 2.5 percent. It is also important to note that the Korean bond market, which has been evaluated as a middle ground between developed and developing countries, is grouped with developed countries. This is because the lack of inclusion in the index can solve the discount problem, which had to raise interest rates whenever the Korean government issues won-denominated bonds. In this case, it is said that about 1 trillion earned in the national treasury can be saved annually.

What is noteworthy is the reason why FTSE Russell classified Korea as a target country this time. Korea is eligible enough to be included in the index under quantitative conditions such as ‘a balance of over $50 billion in government bond issuance based on par, and a national credit rating of A- or higher based on S&P’. However, the global standard foreign bond investment exemption is not enforced. That is why one transfer attempt was canceled in 2009. The atmosphere was reversed when the government decided to apply this part to non-taxation in this year’s tax law review. This list of countries to watch teaches us a new lesson that we can escape Korea’s decline by thoroughly re-examining systems and practices that deviate from global standards.

The opportunity to transfer to WGBI should not be missed this time. This is an important opportunity for Korean financial and foreign exchange markets to regain stability in the face of an unprecedented complex crisis. The government will have to thoroughly examine the implementation process of system improvement so that foreign investors can trust it.

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