Requirements Must Be Met for Inclusion
Deputy Prime Minister Hong Nam-ki said that South Korea should be a member of the World Government Bond Index (WGBI) in view of the scale of its economy, government bond market status, and foreign capital inflow and outflow.
The WGBI is one of the three major global bond indices and covers 23 countries and a fund of US$2.5 trillion. Of the top 10 countries in terms of nominal GDP, only South Korea and India are outside the index.
Quantitative and qualitative requirements must be met for inclusion in the index. The former include at least US$50 billion in total bonds outstanding and at least A- in S&P credit rating. The latter are related to the ease of market access on the part of foreign investors. South Korea has yet to meet the latter.
The WGBI, which is updated every September, is managed by FTSE. Discussions with FTSE and inclusion in its candidate list are required before inclusion in the index. FTSE updates the list when an improvement in market accessibility resulting from a change in policy is confirmed. Then, the new candidate is examined for at least six months.
South Korea is aiming to become a candidate in September this year to join the index in September next year. Then, it is expected to account for 2.2 percent of the index and the figure will be used as a government bond investment benchmark for institutions following the WGBI.