Capital market reforms in recent years sought to promote the development of Chile’s financial market and its integration into the international financial system. Foreign banks (foreign ownership of more than 50 percent) account for close to 40 percent of the banking sector. Foreign ownership of locally issued public debt is only 2 percent in Chile (Central Bank of Chile, 2013). This is extremely low compared with other emerging markets, e.g., 37 percent in Mexico and 60 percent in Peru. This chapter focuses on sovereign bonds, but foreign ownership of locally issued corporate bonds is estimated to be also very low. This is perplexing because when the Chilean government or Chilean companies approach. To the best of our knowledge, there have been no comprehensive studies on the subject. The most recent Financial Stability Report (Central Bank of Chile, 2013) discusses the issue, and points to the tax on capital gains, costs for custody of securities and other administrative costs, and the relatively small size of the sovereign bond market as the reasons. Our study also finds that a combination of factors contributed to the low foreign ownership, including a moderate supply of sovereign bonds shadowed by strong local demand, illiquid secondary market, tax and administrative burden, the dominance of inflation-indexed bonds, and inconvenience and potential risks associated with foreign exchange transactions.