The Mystery of the $1.8 Billion Korean Bond Selloff

South Korean sovereign bonds saw the biggest exodus of foreign cash since at least 2014 on Tuesday, sparking speculation in Seoul -- and beyond -- over who is getting out.

While the finance ministry discloses foreigners’ daily transaction volumes, it doesn’t break it down by nationality or fund location. The 2 trillion won ($1.8 billion) selloff marks the second time in three months that South Korea has seen a hefty debt sale by offshore investors and may signal that escalating tensions over North Korea are starting to rattle some foreigners.

Earlier this year, Franklin Templeton Investment’s $40 billion Global Bond Fund cut its Korean holdings by almost half, according to a July 31 filing. That has Lee Mi-seon, an analyst at Hana Financial Investment, suspecting the emerging-market stalwarts may be behind the withdrawal, given their previous investment patterns. Franklin Templeton declined to comment.

Kim Sang-hoon, a fixed-income analyst for KB Investment & Securities Co. linked the selling to Norway’s sovereign wealth fund, which wants to streamline its portfolio. But that proposal has yet to be approved by the country’s government.

— With assistance by Jonas O Bergman, Y-Sing Liau, and Myungshin Cho

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