Rosy Days For Korea Bonds

Korea's borrowing conditions in international financial markets have improved as the spread on its foreign exchange equalization bonds has narrowed, the Ministry of Finance and Economy said Thursday.

The spread on ROK 08, the benchmark 10-year foreign exchange equalization bond, dropped to 1.99 percent at the end of January from 2.35 percent at the end of last year, the ministry said. The spread is the difference between yields of the Korean bonds and 10-year U.S. Treasury bonds.

The spread on short-term borrowing by the nation's six major commercial banks - Chohung, Hanvit, Korea Exchange, Shinhan, Korea First and Seoul Bank - dipped to 58 basis points over LIBOR from 89 basis points during the same period.

The ministry attributed the improved borrowing terms to two rate cuts by the U.S. Federal Reserve, which have led international investors to shift to emerging-market bonds in search of higher yields. In addition, an increasing number of overseas banks are interested in lending money on expectation of further rate cuts in the United States. Korean banks have more foreign exchange available, the ministry added.

A ministry official said he believes borrowing terms will further improve if the nation's financial and corporate restructuring efforts continue to make progress.

by Suh Kyoung-ho