Foreign investors pile into Korean bonds...equities also shift to net inflows

[Financial News] In the final month of last year, foreign investment in both Korean bonds and equities recorded simultaneous net inflows.
According to the “Trends in International Finance and the Foreign Exchange Market after December 2025” released by the Bank of Korea (BOK) on the 14th, net inflows of foreign investment into Korean bonds in December last year amounted to 6.26 billion dollars. This followed net inflows of 11.81 billion dollars in November, marking the second consecutive month of net inflows.
A BOK official explained, “Despite a large volume of bond maturities, net inflows continued, led mainly by the public sector,” adding, “Among domestic bonds reaching maturity, the amount held by foreign investors was 6.49 billion dollars, the largest ever for the month of December.”
Equity investment funds recorded net inflows of 1.19 billion dollars, reversing from net outflows of 9.13 billion dollars in the previous month. Continued buying was driven by expectations of improved profitability at domestic semiconductor companies on the back of rising memory prices.
The average US Dollar–South Korean Won exchange rate remains on an upward trajectory. It rose on the back of a shift to net buying of non-deliverable forward (NDF) contracts by non-residents, then paused following foreign exchange market stabilization measures, but the decline has narrowed again this year amid renewed dollar strength. As of the closing price on the 12th, it stood at 1,468.4 won per dollar. At the same time, the won–yen exchange rate was 929.43 won, and the won–yuan exchange rate was 210.73 won, down 1.2% and up 1.4%, respectively, compared with the end of November.
However, the December volatility of the US Dollar–South Korean Won exchange rate was 0.36%, little changed from 0.37% in the previous month.
The three-month US Dollar–South Korean Won swap rate, a key indicator of dollar liquidity, stood at -1.23% as of the 12th, up 57 basis points (1bp = 0.01 percentage point) from -1.80% at the end of November. The three-year currency swap rate was 2.68% at the same time, an increase of 17 basis points.
In the fourth quarter of last year, the average daily foreign exchange trading volume in the domestic interbank market was 39.15 billion dollars, down 2.69 billion dollars from 41.84 billion dollars in the previous quarter. By instrument, spot US Dollar–South Korean Won trading decreased by 2.65 billion dollars. Forward trading increased by 160 million dollars, and FX swaps rose by 720 million dollars.
The U.S. 10-year Treasury yield closed at 4.18% as of the 12th, up 17 basis points from the end of November. Despite a 25-basis-point policy rate cut and a more dovish Federal Open Market Committee (FOMC) outcome, including a faster-than-expected decision on Reserve Management Purchases (RMP), yields climbed on the back of large-scale corporate bond issuance and solid economic data.
In the case of the Japan 10-year government bond yield, rates rose by 29 basis points over the same period, driven by a policy rate hike and the implementation of expansionary fiscal policy by the Takaichi Cabinet. The Germany 10-year government bond yield also climbed by 15 basis points over this period on the back of favorable economic indicators.

taeil0808@fnnews.com Kim Tae-il Reporter