3-year yield at 3.683%, 5-year yield at 3.915%
The government has successfully issued US dollar-denominated Foreign Exchange Equalization Fund bonds (FX stabilization bonds) at an interest rate only 0.09 percentage point higher than that of US Treasury bonds.
The Ministry of Economy and Finance announced on the 6th that it had issued a total of 3 billion dollars in US dollar-denominated FX stabilization bonds. The bonds were issued in two tranches: 1 billion dollars with a maturity of 3 years and 2 billion dollars with a maturity of 5 years.
The issue yield for the 3-year bonds was set at 3.683% (coupon rate 3.625%), which is the yield on 3-year US Treasuries plus 9 basis points (bp, 1 bp = 0.01 percentage point). The 5-year bonds were priced at 3.915% (coupon rate 3.875%), which is the yield on 5-year US Treasuries plus 12 bp. In particular, the 9 bp spread on the 3-year tranche is in the single digits compared with US Treasuries, which the ministry assessed as demonstrating the high external creditworthiness of Korea’s FX stabilization bonds. The 5-year tranche also renewed the all-time lowest spread, following the record set in October last year.
The government explained that this issuance reflects a trend toward resolving the so-called “Korea discount” on Korean paper. A spread of around 10 bp over US Treasuries is similar to the level enjoyed by major advanced-economy governments and international organizations, indicating that Korean government bonds are being regarded in the global market as top-tier high-quality assets.
On the 6th, at Hana Bank's Counterfeit Response Center in Jung District, Seoul, an employee was organizing U.S. dollar bills. Photo by Yonhap News.
This issuance is also expected to help increase foreign exchange reserves. The 3 billion dollars represent the largest single issuance since 2009, meaning that in a period of high external uncertainty, the government has preemptively secured foreign-currency resources that can play a stabilizing role in the foreign exchange market. In addition, the government has secured in advance the funds needed to repay yen- and euro-denominated FX stabilization bonds maturing this year.
The government stated that since the end of last year it has actively promoted Korea’s improved economic fundamentals to global investors through group calls and one-on-one video conferences, highlighting the country’s manufacturing competitiveness, artificial intelligence (AI), capital market revitalization, and potential inclusion in the World Government Bond Index (WGBI). It added that the issuance was carried out by taking advantage of a recent window of reduced market volatility.
The government also assessed that by issuing these FX stabilization bonds in the “SSA (Sovereign, Supranational, Agencies)” format, it has strengthened their status as high-quality bonds in the global bond market. The government said, “The interest rates achieved in this issuance will serve as a benchmark for improving overseas foreign-currency funding conditions for domestic companies and financial institutions going forward.”
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