The South Korean government announced the successful issuance of $3 billion in dollar-denominated foreign exchange stabilization bonds (외평채) on June 5, 2024. This marks the largest single issuance since 2009, underscoring the country’s commitment to reinforcing external financial stability amid heightened global uncertainties. The Ministry of Economy and Finance led the initiative, aiming to preemptively bolster foreign currency reserves and ensure a robust safety net for the foreign exchange market. The issuance comes at a time when geopolitical tensions and tariff issues have increased external risks, making proactive measures crucial.
The bonds were issued in two tranches: $1 billion with a three-year maturity and $2 billion with a five-year maturity. The three-year tranche was priced at a 3.683% issue rate and a 3.625% coupon, while the five-year tranche was priced at a 3.915% issue rate and a 3.875% coupon. Both tranches achieved historically low spreads over U.S. Treasury bonds, with the three-year bond at +9 basis points and the five-year bond at a record-low spread, reflecting Korea’s high international credit rating. This outcome signals improved conditions for domestic companies and financial institutions seeking to raise foreign currency in global markets.
The issuance was strategically timed following recent global developments, such as the U.S. budget agreement and potential U.S.-Iran negotiations, which helped stabilize market volatility. The government began preparations at the end of 2023, anticipating increased market uncertainty. The successful SSA (Supranational, Sovereign, and Agency) issuance method further solidified Korea’s reputation for advanced bond issuance practices. Additionally, funds raised will help repay maturing foreign exchange stabilization bonds in September (330 billion yen, 2023 issuance) and October (700 million euros, 2021 issuance), ensuring continued liquidity and stability.
Frequently asked questions include: Why did Korea issue these bonds now? The government acted to strengthen foreign currency reserves amid rising global uncertainties. What benefits do domestic institutions gain? They can now benchmark against record-low spreads, enabling more favorable conditions for overseas funding. How was investor confidence achieved? The government actively promoted Korea’s manufacturing, K-culture, AI competitiveness, and capital market reforms to global investors through group calls and video conferences, highlighting improved economic fundamentals.
The issuance of $3 billion in foreign exchange stabilization bonds by South Korea reflects a strategic and proactive response to global financial uncertainties. By achieving record-low spreads and leveraging advanced SSA issuance methods, the government has strengthened its external safety net and improved conditions for domestic institutions seeking foreign currency funding. The successful investor outreach and timing underscore Korea’s improved economic fundamentals and growing global confidence. This policy action is likely to enhance Korea’s standing in international capital markets and support continued financial stability.