Kimchi Bonds Surge as Weak Won Fuels Foreign Investor Demand

South Korea’s Kimchi Bonds market has seen renewed activity in early 2026, spurred by a persistent weakness in the Korean won (KRW/USD) that has fallen to 1,420 per dollar—the weakest level since 2024. This depreciation has made foreign-currency-denominated debt issued by Korean entities more attractive to international investors seeking yield and currency diversification. As of January 2026, outstanding Kimchi Bonds reached $18.7 billion, up 32% from year-end 2024, with a significant portion tied to financial and consumer sectors, including Hyundai Card Corp. (HYUN.HK), which issued a $1.2 billion six-year bond in December 2025. The rally in demand is closely linked to the yield differential between Korean and U.S. Treasuries. While the 10-year Korean government bond yield (KOR10Y) averaged 4.1% in early January 2026, the U.S. 10-year yield stood at 4.6%, creating a 50-basis-point spread that incentivizes carry trades. The KRW/USD exchange rate, down 11% year-to-date, has amplified the appeal of these dollar-denominated instruments, particularly for investors hedging against further depreciation. Market participants note that the surge in Kimchi Bonds is also affecting broader asset classes. The KOSPI200 index rose 2.3% in the first two weeks of January, supported by inflows into financials and consumer stocks, which benefit from stronger foreign investment. Additionally, the KRW’s weakness has increased pressure on the Bank of Korea to maintain tight monetary policy, with markets pricing in a 70% probability of a rate hike by March 2026. The renewed interest in Kimchi Bonds reflects a broader shift in capital flows across Asia, with investors reallocating from traditional safe-haven assets to higher-yielding emerging market debt. This trend is expected to continue as long as the KRW remains under pressure and yields remain competitive, though risks persist from global interest rate uncertainty and regional geopolitical developments.