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South Korea fails to make it into Citigroup's WGBI
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South Korea fails to make it into Citigroup's WGBI
Reuters - Monday, July 5
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SEOUL , a finance ministry official said on Monday, in a widely expected decision which analysts saw having a limited impact on bond markets.
The ministry's FX market division director, Kim Yi-tae, told Reuters it was checking on details behind the index compiler's decision and expected South Korea to be reviewed again for possible inclusion in the index in September.
"Since our update in March, we continue to see improvement in the Korean market," a spokesman for Citi's World Government Bond Index team said in an emailed note.
"We will provide our next update in the third quarter of 2010."
The South Korean government asked Citigroup early last year to include its local currency debt in the closely watched 23-member index to become the fifth Asia Pacific nation in the WGBI following Japan, Australia, Singapore and Malaysia.
The finance ministry had forecast inclusion would attract up to $20 billion in additional long-term funds, helping it fund its supplementary budget.
But South Korean authorities, wary of volatile capital flows into and out of the country, unveiled last month a plan to cap the amount of currency forwards and other derivatives that domestic and foreign banks can hold.
The tightened regulations led market participants to conclude the government had stopped efforts to secure WGBI membership.
"When the government announced restrictions on currency derivative trades, markets gave up hope for inclusion in the index...within this year," said a fixed-income trader at Daishin Securities.
Front end South Korea treasury futures' September contract dropped 0.07 points to 110.53 ahead of a three-year treasury auction but foreign investors bought a net 3,793 contracts of the futures as of 0201 GMT.
Peter Jongyoun Park, an economist at Woori Investment & Securities, said foreign investors would continue to buy South Korean debt, taking into consideration South Korea's steady economic growth and strong fiscal balance relative to some European countries.
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