Korea's WGBI inclusion could limit further rise in bond yields: analysts

The headquarters of major brokerages are seen in the financial district of Yeouido, Seoul, Dec. 24, 2025. Yonhap

Korea's inclusion in the World Government Bond Index (WGBI) is expected to put downward pressure on rising bond yields, but its impact on foreign capital inflows may be smaller than earlier expected, local analysts said Wednesday.

Korea began its phased eight-month inclusion into the WGBI, a leading index that measures the performance of government bonds from over 20 major economies, including the United States, Japan and China, with an estimated $2.5 to 3 trillion of funds tracking the index.

"The passive fund inflow from Korea's inclusion into the WGBI is estimated to be around 70 trillion ($46.4 billion) to 80 trillion won," Ahn Ye-ha, an analyst from Kiwoom Securities, said.

Offshore investors net purchased 2.77 trillion won ($1.84 billion) worth of Korean government bonds on Tuesday, one day before the country began its inclusion into the index, according to data from the Korea Exchange (KRX), Korea's main bourse operator.

The amount marks the highest daily figure since Sept. 30, 2025, when foreigners net purchased 2.8 trillion won. It also accounts for nearly 30 percent of total net purchases of Korean bonds by foreigners in March, totaling 9.49 trillion won, KRX data showed.

Market watchers expected bond yields would come under downward pressure once funds tracking the WGBI flow into the local market.

Korean bond yields have been on an upward trend lately due to inflationary concerns stemming from the war between the United States and Iran. Yields on the benchmark three-year government bonds had hit the highest level in more than two years, closing at 3.63 percent on March 23. Bond prices move inversely to yields.

"The country's inclusion into the index could ease the burden on the real economy by limiting upward pressure on bond yields as the market faces inflationary concerns from high oil prices and rising market rates," Lee Yoo-jung, an analyst at Hana Bank, said.

Some analysts, however, argue the amount of passive fund inflow to Korea may be smaller than expected, citing unfavorable market conditions.

"The amount of capital in funds tracking the WGBI may have been reduced, with the war deteriorating investment demand for bonds, as well as the global move in capital amid the bullish stock market," Kim Ji-na, an analyst at Eugene Investment & Securities, said.