Gov’t issues $1 billion in bonds

The Korean government successfully sold $1 billion worth of foreign exchange stabilization bonds in New York on Thursday, an indication of foreign investors’ confidence in the Korean economy, the Ministry of Strategy and Finance said Friday.

Foreign exchange stabilization bonds are bonds that the government issues overseas in order to stabilize the Korean won’s value. The interest rate on the bonds is one factor considered when Korean companies get loans overseas. A higher interest rate suggests lower foreign investor confidence in Korea, and the interest burden on Korean firms’ foreign loans rises.

The interest rate on the bonds issued Thursday is the lowest since the Korean government began issuing dollar-denominated foreign exchange stabilization bonds 19 years ago, the ministry said. The spread on the bonds was set 55 basis points, or 0.55 percentage points, higher than that of 10-year Treasuries from the United States. That equates to an interest rate of about 2.871 percent.

The ministry said demand for the bonds amounted to $3 billion, three times the issuing amount. Some 70 foreign institutional investors from Asia, the United States and Europe purchased bonds, with Asian investors accounting for the majority at 54 percent followed by American investors with 25 percent and European investors with 21 percent.

The spread is the lowest among 10-year bonds from other countries with similar credit scores. Korea has an Aa2 rating from Moodys’ and AA from Standard & Poor’s. The spread on similar bonds issued by Canada is 56 basis points higher than on U.S. 10-year Treasuries. The spread on bonds issued by the Japan Bank for International Cooperation, which is guaranteed by the Japanese government, is also 56 basis points higher.

“We were able to reaffirm the positive view of foreign investors in the Korean economy,” a ministry official said. “Since the interest rate on the foreign exchange stabilization bond acts as a benchmark rate for all Korean foreign currency-denominated bonds, it will not only contribute in the issuance of overseas bonds for public companies and state-owned banks but also for the private sector, which will help reduce overall costs.”

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]