Korea sells first 30-year dollar and euro bonds

Korea completed its first sale of 30-year dollar-denominated bonds as well as an issue of euro notes after the cost of insuring the nation’s debt against default slid to a six-year low.

Asia’s fourth-largest economy sold $1 billion worth of 30-year dollar bonds at 72.5 basis points over Treasuries to yield about 4.14 percent. It also issued 750 million euros of 10-year notes at 57 basis points above midswaps, the nation’s first issuance in the European currency since 2006. The dollar bond sale drew 4.5 times more bids than offered, while the euro debt attracted four times the amount, the Ministry of Finance said in an emailed statement.

Korea’s sale follows a five-month run of gains in 30-year U.S. Treasuries that was the longest winning streak since 2006 and drove yields to the lowest level since June 2013. The proceeds will add to the nation’s record currency reserves, which are climbing amid speculation the central bank has been buying dollars to check the won’s advance to a six-year high. Exports fell 0.9 percent from a year earlier in May, the biggest decline since September, government data shows.

“With U.S. Treasury yields having compressed year-to-date and global growth headwinds rising, investors are scrambling for safe-haven assets that provide some additional yield,” said Mark Reade, a Hong Kong-based analyst at Mizuho Securities Asia.

The biggest sovereign dollar sale this year to date has come from Indonesia, which raised $4 billion in January. That matched a previous record set by Korea in April 1998, when it issued $4 billion of U.S. currency bonds in a two-part offering.

Pakistan, the Philippines and Sri Lanka have also sold debt in dollars since the end of 2013, according to data compiled by Bloomberg. Sovereign notes in the U.S. currency from Asia excluding Japan have gained 9.02 percent since Dec. 31, JPMorgan Chase indexes show.

“This is our first time to issue 30-year dollar bonds, which signifies international investors’ strong confidence in the country’s credit health and economic outlook,” said Finance Ministry Director Yoon Tae-sik. “This is good timing because global interest rates are likely to rise in the second half of this year.”

Credit-default swaps insuring Korea’s sovereign debt against non-payment for five years fell to 53 basis points on May 30, the least since January 2008, according to data provider CMA. That compares with 73.8 basis points for China, whose sovereign debt is rated Aa3 by Moody’s Investors Service, the fourth-highest investment grade and the same as Korea.

Korea’s government sold 30-year local-currency debt on Monday at a yield of 3.575 percent, while similar-maturity U.S. Treasuries yielded 3.44 percent as of 4:43 p.m. in New York. Sergey Dergachev, who helps oversee about $10 billion in emerging-market debt as a senior portfolio manager at Union Investment Privatfonds GmbH in Frankfurt, said he is interested in buying both the dollar and euro notes being offered by Korea.

“We are very interested in both tranches, mostly for diversification purposes and the scarcity value we get from getting exposure in the primary market to one of the most improving sovereign credit matrices in emerging-market Asia,” he said.

Overseas investors boosted holdings of Korea’s equities by 628 billion won ($614 million) and local-currency debt by 1.3 trillion won this year as of the end of April, Financial Supervisory Service data shows.

The nation’s current-account surplus was $7.125 billion in April, central bank figures show, and the won has strengthened 10 percent versus the dollar in the past 12 months.

Bloomberg