South Korea’s Ministry of Economy and Finance is loosening the reins on its bond market, allowing foreign investors to trade more won-denominated bonds and access won loans from domestic foreign exchange banks. The move is designed to smooth out the operational headaches that have historically made Korean government bonds a harder sell for overseas portfolio managers.
What’s actually changing
The core of the policy shift centers on two things. First, foreign investors can now access temporary won overdrafts for foreign exchange transactions. Second, non-resident investors can settle transactions through omnibus accounts at international central securities depositories like Euroclear and Clearstream.
Previously, foreign investors dealing in Korean government bonds, known as KTBs, faced significant settlement frictions. Getting access to won liquidity at the right time, navigating domestic banking relationships, and managing the FX component of trades all added layers of complexity that made other Asian bond markets look comparatively frictionless.
The regulatory revisions build on preliminary announcements made in February 2024, which laid out plans to give foreign investors broader access to won quotes from multiple banks. The main course arrived on June 26, 2024, when MOFE formally announced the new overdraft and settlement regulations, which took effect shortly thereafter.
