Foreign investors’ net selling of South Korean bonds widened from $960 million in July to $4.53 billion in August, extending the trend to two consecutive months. After South Korean government bonds entered the World Government Bond Index (WGBI), net purchases rose from $550 million in April to $5.68 billion in May, before easing to $1.65 billion in June and turning negative in July. Long-term passive funds tracking the index have continued to provide inflows, but active funds seeking short-term gains have exited more quickly. The sharpest reversal was in government bonds maturing in two years or less, where foreign investment shifted from net buying of 9.9 trillion Korean won in the second quarter to net selling of 7.9 trillion won in the third quarter. Buying also weakened across longer maturities, while total foreign bond holdings fell by 2.7 trillion won between the end of June and the 7th. The decline in short-term arbitrage incentives, from -0.017% in June to -0.039% in August, has made U.S. Treasuries more attractive than won-denominated South Korean bonds for some investors. Continued selling could pressure the won and push South Korean government bond yields higher, although structural WGBI-linked inflows may support market stability over the longer term.