Korea raises $ 1.3 billion through foreign exchange bonds

The government raised $ 1.3 billion by selling currency stabilization bonds at the second lowest rate on record despite heightened uncertainties in global financial markets, the finance ministry said Thursday.

He sold $ 500 million US dollar-denominated bonds with a 10-year maturity for a yield of 1.769%, 25 basis points higher than US Treasuries and Euro-denominated bonds to five years worth 700 million euros ($ 809 million) with a negative return of 0.053 percent.

The bonds were issued at the second lowest rate while the yield spread between the latest FX bonds and US and European benchmark bonds hit an all-time low. A lower bond spread implies lower credit risk.

“The successful bond sale has reaffirmed the confidence of foreign investors in the South Korean economy in a situation where uncertainty in the global financial market has increased due to the potential reduction of the US Fed and the Evergrande crisis in China, ”said Finance Minister Hong Nam-ki.

With around 50 global capital market institutions showing strong interest at an investor meeting, bonds denominated in US dollars and euros have attracted four times and six times the amount offered, the ministry said. finances.

The country issued euro-dominated bonds for the second time with a negative yield. This means that he will receive 71.9 million euros, which is more than the face value of 700 million euros, and will only be able to repay the face value at maturity without paying interest.

By increasing the volume of foreign exchange reserves through the bond program, Asia’s fourth-largest economy will be able to defend its financial and foreign exchange markets in the event of external shocks such as the instability of financial markets in advanced countries and crises in the countries. emerging countries, according to the Ministry of the Economy and Finance.

Forex bonds are sold to stabilize the value of the won in anticipation of rapid fluctuations in exchange rates due to changes in internal and external markets.

The country’s foreign exchange reserves hit a record high of $ 463.97 billion in September, up $ 40 million from the previous month, according to central bank data.

Euro-denominated bonds were the first green bonds issued by an Asian government and designed to finance environmentally friendly projects like renewable energy. Green bonds are expected to be listed on the London Stock Exchange at the request of the UK government.

As FX bond yields often serve as a benchmark for Korean bonds traded in international financial markets, the interest rate on the issuance of foreign bonds by the private sector will decrease accordingly, which will help them reduce costs. loan, Hong said.

By Park Han-na (hnpark@heraldcorp.com)

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