The South Korean government has successfully issued a record €1.7 billion in euro-denominated foreign exchange stabilization bonds amid rising tensions in the Middle East and other external uncertainties. This issuance has reaffirmed global investors' confidence in the South Korean economy, as both the three-year and seven-year bonds recorded the lowest spread rates in history for their respective maturities.
The Ministry of Economy and Finance announced on July 9 that it successfully issued €1.7 billion in euro-denominated foreign exchange bonds on July 8, equivalent to approximately $1.94 billion.
The bonds were issued in two tranches: €700 million for three years and €1 billion for seven years, marking the largest issuance of euro-denominated foreign exchange bonds to date.
The issuance rates were set at 2.981% for the three-year bond, which is 10 basis points above the euro mid-swap rate, and 3.285% for the seven-year bond, which is 28 basis points above the euro mid-swap rate. The coupon rates are 2.875% and 3.250%, respectively.
The spread rates have significantly decreased. Both the three-year and seven-year bonds achieved the lowest spread rates in history for their respective maturities. Compared to last year's issuance of euro-denominated foreign exchange bonds, the spread for the three-year bond dropped from 25 basis points to 10 basis points, while the seven-year bond fell from 52 basis points to 28 basis points.
The government assessed that this issuance has reestablished the benchmark for euro-denominated Korean bonds. Notably, the seven-year bond issuance surpassed the previous record of €750 million set in 2014 for a single tranche. Despite increased external uncertainties due to rising tensions in the Middle East, demand from global institutional investors remained strong.
Prior to the issuance, the government explained its growth strategies to global investors, highlighting initiatives for a major transition in artificial intelligence, enhancing competitiveness in advanced manufacturing, and modernizing capital markets.
As a result, the final issuance rates were lower than initially proposed. The three-year bond was issued at +10 basis points, down from the initially suggested euro mid-swap +14 basis points, while the seven-year bond was issued at +28 basis points, down from +32 basis points.
The government noted that the spread rates achieved are lower or comparable to similar maturity bonds issued by major advanced countries and reputable public sector issuers. In fact, the spread rate of 28 basis points for the seven-year bond is lower than the comparable market rates for the Quebec and Ontario provincial governments, which have the same credit rating as South Korea.
The spread rate for foreign exchange bonds serves as a benchmark for South Korean issuers, including domestic companies and financial institutions, when raising funds overseas. This reduction in spreads is expected to lower the overall foreign currency funding costs for South Korean entities.
From a foreign financial stability perspective, the government has secured repayment resources for €700 million in euro-denominated foreign exchange bonds maturing in October this year, ensuring stable external payment capabilities without refinancing burdens.
With this issuance, the government has fully utilized its foreign exchange bond issuance limit of $5 billion for the year. This marks the largest annual issuance of foreign exchange bonds in history.
The government assessed that the successful absorption of volumes in both dollar and euro markets, along with achieving historically low spread rates, reflects strong global investor confidence in South Korean bonds.
A Ministry of Economy and Finance official stated, “We will closely monitor the international financial market situation to maintain a stable foreign currency funding base and unwaveringly support our economy's external soundness.”
* This article has been translated by AI.
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