Value context and insight. lkm@koreatimes.co.kr
Korea issues $1.3 bil in forex bonds at record-low spread
Ministry of Economy and Finance International Finance Bureau Director General Kim Seong-wook speaks during a briefing at Sejong Government Complex, Thursday. Courtesy of Ministry of Economy and Finance
By Lee Kyung-min
Seoul-Washington currency swap needs to be extended
By Lee Kyung-min
Korea has issued $1.3 billion (1.5 trillion won) in dual-tranche dollar- and euro-denominated bonds at a record-low spread, lifted by a high assessment of the Korean economy by overseas investors, the finance ministry said Thursday. The dollar bond sale was four times greater than the initial purchase order, while the euro bond sale was six times greater. Among the buyers were central banks and sovereign wealth funds from the U.S., Europe, the Middle East, Asia and Africa.
The spread between $500 million worth of 10-year dollar-denominated bonds with a yield of 1.769 percent and U.S. Treasuries with the same maturity was 25 basis points.
The spread between 700 million euros worth of five-year euro-denominated bonds with a negative yield of 0.053 percent and benchmark euro mid-swap was 13 basis points.
The record-low spread of 25 basis points for the dollar-denominated bonds and 13 basis points for euro-denominated debt contrast with 50 basis points and 35 basis points, respectively, from last year, when the ministry issued $1.45 billion worth of foreign exchange stabilization bonds.
Korea issued $625 million worth of 10-year dollar-dominated bonds with a yield of 1.198 percent and 700 million euros worth of five-year euro-denominated bonds with a negative yield of 0.059 percent in September.
"The record-low spread for the two key foreign currency-denominated sovereign debt illustrates foreign investors' confidence in the Korean economy,” Kim Seong-wook, director-general of the International Finance Bureau at the Ministry of Economy and Finance, said during a briefing at Sejong Government Complex.
Korea was the first Asian country to issue euro-denominated bonds as green bonds or climate bonds, which are fixed-income financial instruments used to fund projects that have positive environmental benefits such as renewable energy.
The green bonds will be listed on the London Stock Exchange (LSE) for the first time as Korea-issued debt following a request by the British government. Currently, they were listed only on the Frankfurt Stock Exchange in Germany.
“We believe demand will continue with the rise of environmental, social, and governance (ESG) drive in global financial markets. The return will be higher, helping us with more effective management of our foreign currency reserve and elevating the country's standing on the global stage.”
The higher-than-expected sales were buoyed in part by Deputy Finance Minister for International Affairs Yoon Tae-sik, who met with global investors, including Amundi, a leading European asset manager, and Ostrum Asset Management, part of Groupe BPCE, a banking group in France.
During the second part of the 2021 Organization for Economic Cooperation and Development (OECD) Ministerial Council Meeting early this month, Yoon informed them of Korea's forex bond issuance plan this year.
Ministry data showed Amundi and Ostrum have over 1.794 trillion euros and 437 billion euros in assets under management, respectively, as of June.
The ministry said the issuance helps increase the volume of Korea's foreign currency reserve, a key defense mechanism against foreign capital outflow brought on by external shocks due to global financial market uncertainties.
When asked whether the rapid weakening of the Korean currency of late should be a cause for concern for financial and foreign exchange authorities, Kim said Korea's financial market condition remains stable, as measured by credit default swap premiums, among other movements in key market indicators.
“We find it unreasonable to make a causal link between external shock and currency volatility since the beginning of this year,” Kim said.
Meanwhile, some are voicing the need for Korea to promptly arrange an extension of a foreign currency swap deal with the U.S., which is set to expire in December, in order to preemptively stabilize a further weakening of the Korean currency. Announcing the extension of the bilateral deal in and of itself can ease market volatility to a certain degree.
The Korean currency closed at 1,190.4 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 on Wednesday closed at the 1,190 won-level for the first time since August 4 last year when it hit 1,194.1 won.
Bank of Korea data showed Korea has $463.9 billion in foreign exchange reserves as of September, up $40 million from a month earlier. These have risen consecutively over the past three months since July.