Government, 17to issue euro-denominated foreign exchange stabilization bonds at the lowest spread ever

The government issued euro-denominated foreign exchange stabilization bonds worth 17at the lowest spread ever. The government said the issuance was an example of confirming overseas investors’ confidence in Korean paper.

This euro-denominated foreign exchange stabilization bond was the largest ever in euro terms. The Ministry of Finance and Economy disclosed the size and terms of the issuance.

The spread on the bonds issued was 3for the bond maturing in years versus the euro midswap rate, 10basis points, 7for the bond maturing in years, 28basis points. The government said both were at the lowest level ever for the same maturity.

Korean foreign currency bonds are foreign-currency bonds issued by the government in overseas markets. They serve as a Korea-specific benchmark that domestic institutions and companies use when raising funds abroad.

The government did not view this issuance as a means to directly push down the won-dollar exchange rate, and instead saw significance in the fact that it showed foreign currency could also be raised at low cost in offshore funding markets beyond the dollar.

A government official explained that the low spread was the result of overseas investors assessing the credit risk of Korean government bonds as low. The official added that it could also serve as a positive benchmark for follow-on issuers such as the Export-Import Bank of Korea, the Korea Development Bank, public corporations, commercial banks, and large conglomerates.

This issuance took place amid unstable moves in the won-dollar exchange rate at elevated levels. Concerns over a high exchange rate and external dollar demand were also raised in the National Assembly.