Bloomberg and ICMA Survey Finds Reforms are Expected in KTB Markets by Global Investors to Boost Interest and Trading Efficiency

New survey analysis of Korea Treasury Bonds (KTB) reveals significant untapped market potential for KTB trading. The survey, conducted by Bloomberg and the International Capital Market Association (ICMA), suggests that recent market reforms can generate increased interest in KTB trading.

The study surveyed more than 300 respondents within the global financial sector to assess the impact of existing reforms from a market stakeholder’s perspective and to understand market expectations of further reform initiatives in Korean capital markets.

The survey found that a staggering 91% of respondents had never engaged in KTB trading, indicating significant untapped market potential. While the majority of the respondents (88% of those who had never traded KTBs) do not have a clear plan to enter the market in the near term, the survey suggests that clearing with International Central Securities Depositories (ICSDs) and allowing KRW to be tradable offshore could be factors which drive them to consider entering the KTB markets. Only 3% of respondents said they currently traded KTBs, with only 6% having done so in the past. Consistent across all participant types, they traded KTBs mostly for portfolio diversification, however they experienced difficulties when trading KTBs offshore.

The survey noted that recent market reforms have sparked increased interest. Nearly half of the respondents expressed heightened interest due to latest operational reforms such as the “Simplified process for third-party onshore foreign exchange” (57%), the “Abolition of the Investment Registration Certificate[1]” (47%) and “Omnibus account” (47%). Market participants also agreed that the likely impact of those measures will make KTB trading easier.

Furthermore, the anticipated use of the omnibus account for KTB trading has garnered significant attention, with 56% of respondents indicating plans to utilize this facility. This reflects a real demand for the omnibus account among market participants.

Looking ahead, there is cautious optimism for the KTB markets’ growth, with the potential for increased trading volumes facilitated by clearing with ICSDs and a positive impact expected from the inclusion of KTBs in global major indices.

Survey respondents commented on strategic improvements that could bolster the appeal of the KTB markets, including technological advancements such as developing a robust e-trading platform for KTBs to improve transparency, efficiency, and accessibility for domestic and international investors, and leveraging AI, blockchain and Straight Through Processing (“STP”) measures that would reduce settlement costs and improve operational efficiency.

According to comments provided by respondents, ensuring high-quality collateral availability would boost market confidence, and implementing Delivery Versus Payment (DVP) clearing arrangements with custodians would streamline settlement processes and reduce settlement risks. Promoting the use of the Global Master Repurchase Agreement (GMRA) for repo trades would standardize and streamline transactions.

Bloomberg and ICMA shared preliminary findings of the survey with the Ministry of Economy and Finance (MOEF) of South Korea in May 2024 and sought its feedback to global investors’ comment.  “Despite uncertainties in global markets, Korea remains one of the most dynamic economies in Asia and continues to be on a growth trajectory, presenting opportunities for global investors. 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 optimize infrastructure to facilitate foreign participation in KTB markets,” Sang Hyun Kwak, MOEF’s Director of Government Bond Policy Division said. “We wish to thank Bloomberg and ICMA for conducting this survey of global investors, helping us better understand their current views and expectations.”

Bing Li, Head of APAC, Bloomberg, said: “The KTB markets remain broadly untapped by global investors and contain substantial potential for growth. Key reforms such as offshore KRW trading and ICSD clearing are potential catalysts to attract new market participants. Technological enhancements and infrastructure improvements could also be real game-changers for increased participation in the markets.”

Mushtaq Kapasi, Chief Representative, Asia-Pacific, ICMA said: “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.”

To see the full report, please click here.

[1] For more information, please refer to https://www.fsc.go.kr/eng/pr010101/80123

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 About International Capital Market Association (ICMA)

ICMA promotes well-functioning cross-border capital markets, which are essential to fund sustainable economic growth. It is a not-for-profit membership association with offices in Zurich, London, Paris, Brussels, and Hong Kong, serving over 620 members in 68 jurisdictions globally. Its members include private and public sector issuers, banks and securities dealers, asset and fund managers, insurance companies, law firms, capital market infrastructure providers and central banks. ICMA provides industry-driven standards and recommendations, prioritising three core fixed income market areas: primary, secondary and repo and collateral, with cross-cutting themes of sustainable finance and FinTech and digitalisation. ICMA works with regulatory and governmental authorities, helping to ensure that financial regulation supports stable and efficient capital markets.

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