$1.3 Billion Foreign Currency Bonds Issued... Record-Low Spread Rate

10-Year Dollar Bonds at 1.769%, 5-Year Euro Bonds at -0.053%

Successful Issuance Despite Risks Like Inflation and Interest Rate Hikes

Issuance Rates Combining Spread and Benchmark Rates Are Second Lowest Ever
Ministry of Economy and Finance: "Lowest Ever Spread, Second Lowest Issuance Rate... Verification of Korea's Credit"

[Sejong=Asia Economy Reporter Moon Chaeseok] The Ministry of Economy and Finance announced on the morning of the 7th that it issued foreign exchange stabilization fund bonds worth $1.3 billion. These include $500 million in 10-year maturity dollar-denominated bonds and 700 million euros in 5-year maturity euro-denominated bonds. The foreign exchange stabilization bonds are bonds issued by the government to raise funds for the 'Foreign Exchange Stabilization Fund,' which is established to stabilize the value of the Korean won against sudden exchange rate fluctuations caused by domestic and international market changes. The issuance proceeds will be managed as foreign exchange reserves.

The issuance interest rate for the 10-year dollar bonds was 1.769%, which is 25 basis points (1bp=0.01 percentage points) above the 10-year US Treasury yield, and for the 5-year euro bonds, it was -0.053%, which is 13 basis points above the 5-year euro mid-swap rate. The Ministry of Economy and Finance issued euro-denominated foreign exchange stabilization bonds at a negative interest rate for the second consecutive year. They received 701 million euros, which is more than the face value of 700 million euros, and no interest needs to be paid at maturity.

The spread on the foreign exchange stabilization bonds issued this time is at an all-time low. The spread is the additional interest rate added to benchmark rates such as US Treasury yields based on the issuer's creditworthiness. The higher the creditworthiness, the lower the spread. According to the Ministry of Economy and Finance, this year’s spread for dollar-denominated foreign exchange stabilization bonds fell from 50 basis points last year to 25 basis points, and for euro-denominated bonds, it dropped from 35 basis points last year to 13 basis points.

The issuance interest rate, which is the sum of the spread and the benchmark rate, was also the second lowest ever. Following the record low set last year, it recorded a low value again this year.

The Ministry of Economy and Finance explained that the foreign exchange stabilization bonds were issued amid strong interest from overseas investors. The final valid orders were four times the issuance amount for the dollar bonds and six times for the euro bonds. Additionally, it became the first Asian government to issue euro-denominated green bonds. Green bonds are bonds whose issuance proceeds are invested in green projects such as renewable energy.

The Ministry of Economy and Finance stated, "Despite the recent significant expansion of uncertainties in the international financial market, including global inflation concerns, shifts in major countries' monetary policy stances, and emerging market debt risks, we achieved the lowest spread ever, reaffirming the strong trust of overseas investors in our economy," and added, "We expect a reduction in overseas funding costs." Furthermore, "By further expanding foreign exchange reserves, we expect to contribute to stabilizing the domestic financial and foreign exchange markets in the event of external shocks such as financial market instability from advanced countries or crises from emerging countries," and "It will also contribute to strengthening international financial cooperation."

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki wrote on his social media service (SNS), "Through the successful issuance of this foreign exchange stabilization bond, we were able to reaffirm overseas investors' trust in our economy despite the expanding uncertainties in the international financial market, such as the recent possibility of US tapering and the China Evergrande crisis," and explained, "Since the spread on foreign exchange stabilization bonds becomes the benchmark rate for Korean bonds, the issuance interest rates for private overseas bonds will also decline, reducing overall borrowing costs. Additionally, expanding foreign exchange reserves is expected to strengthen the safety net against external shocks."

The euro-denominated green foreign exchange stabilization bonds issued this time are scheduled to be listed on the London Stock Exchange (LSE) for the first time for Korean government bonds, at the request of the UK government.

This content was produced with the assistance of AI translation services.