Foreign investors became net sellers of South Korean bonds in August for the first time since January 2023, selling 839.7 billion won ($624.8 million), after purchasing 1.8119 trillion won in July. Their holdings fell from a record 356.5579 trillion won on July 24 to 343.6321 trillion won by Sept. 2, a 12.9258 trillion won decline over 27 trading days and the largest comparable drop in five years, before partially recovering to 348.3692 trillion won by Sept. 9. The reversal reflected the disappearance of currency-hedged arbitrage gains: the spread fell from 68.3 basis points at the end of last year to negative 30.0 basis points by Sept. 10, while the three-month won-dollar swap rate narrowed from minus 1.4847% to minus 0.4308%. External pressure also increased as Brent crude rose above $100 a barrel and U.S. Treasury yields climbed, pushing South Korea's three-year and 10-year government bond yields to 4.014% and 4.540%, respectively, on Sept. 11. Foreign investors remained net buyers of 63.2579 trillion won in domestic bonds through Sept. 11, but that was 35.2% below the comparable period's 97.5878 trillion won. Passive inflows linked to South Korea's phased inclusion in the World Government Bond Index helped limit the scale of foreign selling.