Recent market reforms could turn around low engagement with Korean Treasure Bond (KTB) trading, according to research from Bloomberg and the International Capital Markets Association (ICMA).
In a survey of more than 300 global financial sector participants, just 9% stated that they had ever engaged in KTB trading, with only 3% currently trading the bonds. Of those who had never engaged, 88% added that they had no clear plans to enter the market in the near term.
KTB trading was primarily used to diversify portfolios, the respondents shared, noting that there were difficulties in trading them offshore.
However, this low engagement may be about to change. Recent market reforms including the simplified process for third-party onshore foreign exchange in July and the abolition of the investment registration certificate in 2023 were cited as reasons for greater interest in KTB trading, with the view that they will make the process easier.
The anticipated use of the omnibus account, opened for government bonds linked with ICSDs this summer, was another driver of interest for 47% of those polled. In total, 56% indicated their intentions to use this facility. Participants noted the impact that KTB clearing with ICSDs and their inclusion in global major indices were causes for “cautious optimism”.
To further support the growth of KTB trading, the introduction of an e-trading platform and the use of emerging technologies including AI, blockchain and straight-through processing were suggested by those surveyed. Together, these could reduce settlement costs, improve operational efficiency and transparency, and provide greater accessibility for domestic and international investors, the results noted.
Collateral availability was also highlighted as an area of improvement, along with the implementation of delivery versus payment clearing arrangements with custodians and increased use of the Global Master Repurchase Agreement for repo trades.
Upon being presented with the survey’s initial response in May 2024, Sang Hyun Kwak, director of the government bond policy division at the Ministry of Economy and Finance (MOEF) of South Korea, commented: “Enhancing global investor access to the KTB markets is a key priority of the Korean government and Korean regulators. We have been launching a set of measures to simplify the trading of KTB and Korean Won, and will continue to optimise infrastructure to facilitate foreign participation in KTB markets.”
Mushtaq Kapasi, chief representative for APAC at ICMA, added: “We are deeply encouraged by Korea’s recent capital market reforms to enable the inclusion of Korean government bonds in international bond indices. Our KTB market survey not only demonstrates the significant untapped opportunities for both international investors and Korean issuers, but more importantly, the willingness of these investors to consider KTBs as part of their portfolios.”
©Markets Media Europe 2024
