Korea issues $ 1.3 billion in forex bonds at record spread

Economy and Finance Ministry’s International Finance Bureau Director General Kim Seong-wook speaks during a briefing at the Sejong government compound on Thursday. Courtesy of the Ministry of the Economy and Finance

Seoul-Washington currency swap must be extended

By Lee Kyung-min

Korea issued $ 1.3 billion (1.5 trillion won) of two-tranche dollar and euro denominated bonds at a record spread, supported by a high assessment of the Korean economy by foreign investors, the Ministry of Finance announced Thursday. The sale of dollar bonds was four times higher than the original buy order, while the euro bond sale was six times higher. Buyers included central banks and sovereign wealth funds from the United States, Europe, the Middle East, Asia and Africa.

The spread between $ 500 million of 10-year dollar-denominated bonds with a yield of 1.769% and US Treasuries of the same maturity was 25 basis points.

The spread between 700 million euros of five-year euro-denominated bonds with a negative yield of 0.053% and the benchmark euro mid-swap was 13 basis points.

The record spread of 25 basis points for dollar-denominated bonds and 13 basis points for euro-denominated debt contrasts with 50 basis points and 35 basis points, respectively, compared to last year, when the ministry issued $ 1.45 billion in foreign currency. stabilization bonds.

Korea issued $ 625 million dollar-dominated 10-year bonds with a yield of 1.198% and € 700 million five-year euro-denominated bonds with a negative yield of 0.059% in September.

“The record spread for the two major foreign currency-denominated sovereign debts illustrates the confidence of foreign investors in the Korean economy,” said Kim Seong-wook, director general of the International Finance Bureau of the Ministry of Economy and Finance. Finances. a briefing at the government complex in Sejong.

Korea was the first Asian country to issue euro-denominated bonds in the form of green bonds or climate bonds, which are fixed income financial instruments used to finance projects with positive environmental benefits such as renewable energy. .

Green bonds will be listed on the London Stock Exchange (LSE) for the first time as Korea issued debt following a request from the UK government. Currently, they were only listed on the Frankfurt Stock Exchange in Germany.

“We believe demand will continue as environmental, social and governance (ESG) dynamics increase in global financial markets. The return will be higher, helping us to manage our foreign exchange reserve more effectively and to elevate the country’s position globally. to organise.”

The higher-than-expected sales were supported in part by Deputy Finance Minister for International Affairs Yoon Tae-sik, who met with global investors including Amundi, a European leader in asset management, and Ostrum Asset Management, a subsidiary of Groupe BPCE, a group bank in France.

During the second part of the 2021 Organization for Economic Co-operation and Development (OECD) Ministerial Council meeting earlier this month, Yoon briefed them on Korea’s forex bond issuance plan this year.

Ministry data showed that Amundi and Ostrum respectively held more than € 1.794 billion and € 437 billion in assets under management in June.

The ministry said the issue helped increase the size of Korea’s foreign exchange reserve, a key defense mechanism against outflows of foreign capital caused by external shocks due to uncertainties in global financial markets.

When asked if the rapid weakening of the Korean currency in recent times should be of concern to the financial and foreign exchange authorities, Kim said the situation in the Korean financial market remains stable, as measured by the credit default swap premiums, among other movements in key market indicators.

“We find it unreasonable to establish a causal link between external shock and currency volatility since the start of this year,” Kim said.

Meanwhile, some express the need for Korea to quickly organize an extension of a currency swap deal with the United States, which is due to expire in December, in order to preemptively stabilize further weakening of the Korean currency. . The announcement of the extension of the bilateral agreement may in itself mitigate market volatility to some extent.

The Korean currency closed at 1190.4 won against the dollar on Thursday, up 1.9 won from the previous session when it closed at a year-to-date low of 1192.3 won. The Korean currency closed at the 1,190 won level on Wednesday for the first time since August 4 last year, when it hit 1,194.1 won.

Data from the Bank of Korea showed Korea had $ 463.9 billion in foreign exchange reserves in September, up $ 40 million from the previous month. These have increased consecutively in the last three months since July.