February 9, 2023, London Investor Roundtable. Choi Sang-dae, Second Vice Minister of Economy and Finance, visited FTSE Russell, the index provider for the World Government Bond Index (WGBI), to request cooperation for its inclusion in the WGBI. [Photo: Ministry of Economy and Finance]

Inclusion in the World Government Bond Index (WGBI) is not merely symbolic. It signifies that Korean government bonds have entered a major benchmark index of the global bond market, opening a channel for institutional inflow of global funds that track Korean government bonds.

FTSE Russell, the operator of the WGBI, announced that Korea's inclusion in the WGBI was decided in October 2024 and will be reflected in stages over eight months from April to November 2026. As of February 2026, Korea's estimated weight is 1.89%, with 65 types of won-denominated government bonds eligible for inclusion.

The effects of this inclusion become clearer when viewed in terms of numbers.

The scale of global funds tracking the WGBI is typically cited as being between $2.5 trillion and $3 trillion. Applying Korea's estimated weight of 1.89% to this range results in approximately $47 billion to $57 billion.

The expectation of foreign bond fund inflows of around $50 billion to $60 billion, as stated by the government and the market, stems from this calculation. While this is an estimate obtained by multiplying the total amount of tracking funds by the expected weight, rather than a confirmed inflow amount, the basis for the figure is clear.

The most direct effect of this expected fund inflow is an expansion of the demand base for government bonds.

As stable demand for purchasing Korean government bonds increases, bond prices will rise. Conversely, this creates downward pressure on yields, which move inversely to prices, meaning market interest rates will fall.

The Ministry of Economy and Finance has also stated that it anticipates interest rate stabilization, a reduction in borrowing costs for the government and corporations, and an expansion of liquidity in the foreign exchange market as effects of WGBI inclusion. IMF research also indicates that increased foreign participation tends to lower long-term government bond yields.

The stabilization of government bond yields is not just a government concern.

Government bonds serve as a benchmark asset for market-wide interest rates. Therefore, improved conditions for issuing government bonds not only reduce the government's borrowing burden but can also indirectly alleviate borrowing costs for corporations.

Hence, the essence of WGBI inclusion lies not in the mere inflow of foreign funds itself, but in broadening the demand base for the Korean bond market and making the funding structure more stable.

However, treating this achievement as a panacea for currency defense would be an exaggeration.

Inclusion is not a one-time event but a phased process over eight months, and the inflow of funds does not directly go into the spot foreign exchange market. Therefore, the direct impact of WGBI inclusion is closer to stabilizing government bond supply and demand and strengthening market confidence than causing a sharp reversal in the won-dollar exchange rate.

While it will help with won supply and demand, its effect is merely that of a buffer.

A point of caution arises during periods of crisis.

Under normal circumstances, the inflow of foreign bond funds can contribute to interest rate stability and improved borrowing conditions. However, in situations of global shocks or heightened risk aversion, it could potentially amplify the swings in fund inflows and outflows, thus increasing volatility in interest rates and exchange rates.

While the IMF acknowledges that increased foreign participation can contribute to lower long-term interest rates, it has also pointed out the possibility of increased volatility in the local currency bond market.

Ultimately, WGBI inclusion is a positive factor during normal times, but it also serves as a test of the market's resilience and policy response capabilities during crises.

An interesting point is that this task was actively pursued and finalized during the Yoon Suk-yeol administration.

Korea was placed on the WGBI's watchlist in September 2022, followed by measures to improve the foreign investment environment and enhance market accessibility. A government press release from April 2025 also explicitly states that Korea's WGBI inclusion was "decided in October 2024."

This means that the task was finalized during the Yoon Suk-yeol administration. The actual implementation of inclusion and its effects are only now materializing in 2026.

The answer to why it took so long is also clear.

Based solely on its economic size and sovereign credit rating, Korea should have been a candidate for inclusion long ago. The obstacle was not its scale, but its accessibility.

The process for foreign investors to enter, trade, and settle in the Korean government bond market was inconvenient compared to global standards, and FTSE Russell's decision to include Korea reflected improvements in this market accessibility.

In other words, while the Korean economy had already reached that level, the market had not been as open as its economic stature would suggest.

This point also reflects a long-standing aspect of the Korean economy.

Through the foreign exchange crisis and the global financial crisis, the Korean capital market has operated with an emphasis on control and stability rather than openness. While such choices were meaningful during crisis periods, they came at the cost of delaying inclusion in international benchmark indices during normal times.

This WGBI inclusion is an event that reduces that cost of delay. It represents a systematic shift in judgment from a market that needed to be closed for safety to one that can be managed even when open.

Ultimately, this inclusion is not an event that can be concluded with a single financial news headline.

Considering the expected inflow of foreign bond funds, the stabilization of government bond yields, the improvement of borrowing conditions for the government and corporations, and the buffering effect on won supply and demand, WGBI inclusion should be understood as a structural change in the Korean financial market.

At the same time, given the potential for increased volatility during crises, this inclusion is both an achievement and a test.

WGBI inclusion is not an endpoint but a starting point. This is why, despite being late, it is by no means a minor accomplishment.