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Record-low forex bond yields denote economic resilience


Ministry of Economy and Finance International Finance Bureau Director General Kim Seong-wook, left, speaks during a briefing at Sejong Government Complex, Tuesday. Courtesy of Ministry of Economy and Finance
Ministry of Economy and Finance International Finance Bureau Director General Kim Seong-wook, left, speaks during a briefing at Sejong Government Complex, Tuesday. Courtesy of Ministry of Economy and Finance

Eximbank Korea issues negative yield global bonds in euros

By Lee Kyung-min

A growing number of state-run and private organizations will be able to borrow foreign funds at a cheaper rate following solid demand for the recent government-issued dollar- and euro-denominated bonds with record-low yields, the finance ministry said Tuesday.

The dual tranche issuance of $1.45 billion (1.7 trillion won) in foreign exchange stabilization fund bonds (forex bonds), Sept. 10, not only attests to foreign investors' high assessment of the Korean economy, but also helps increase the volume of foreign reserve, a key defense mechanism against foreign capital outflow brought on by external shocks due to the global financial market uncertainty.

"The record-low yield on the two key foreign currency-denominated sovereign debt that serves as a benchmark for local state-run and private organizations will help them with cheaper financing, bolstering their effective cost-saving capabilities," Kim Seong-wook, director-general of the International Finance Bureau at the Ministry of Economy and Finance, said during a briefing at Sejong Government Complex.

The assessment came after global investors have shown keen interest in purchasing the recently issued sovereign debt bonds comprising $625 million in 10-year dollar-dominated bonds with a yield of 1.198 percent and 700 million euros in five-year euro-denominated bonds with a negative yield of 0.059 percent.

Korea was the first non-European state to issue euro-dominated bonds with a negative yield.

The ministry initially received purchase requests of $5 billion in dollar-denominated bonds, 5 billion euros in euro-denominated bonds, nearly 10 times greater than the initial issuance volumes of $500 million and 500 million euros, respectively.

The ministry later lowered the final spread between Korea's bonds and the U.S. treasuries with the same maturity to 50 basis points ― from 90 ― and the spread between Korea's and Mid-swap, a benchmark for euro-denominated bonds, to 35 basis points from 60.

Yet it still saw purchase requests 5.8 times greater than the amount offered for dollar-denominated bonds and 7.8 times for euro-denominated ones, an indication of a robust demand from global investors to buy sovereign bonds despite lower-than-expected returns.

Among them are central banks and sovereign wealth funds from countries in Europe, the Middle East and Africa ― a source of new foreign investors to Korea.

Yields on bonds issued by state-run and private entities will be reduced to a degree across the board, given their rates are the sum of forex bond and additional interest payable set depending on individual credit status.

A case in point is a $1.5 billion bond issued by the Export-Import Bank of Korea (Eximbank), Tuesday.

The state lender said it issued 500 million euros in three-year maturity bonds, alongside $400 million in five-year maturity and $500 million in 10-year maturity in dollar-denominated bonds.

Over $7.62 billion in purchase requests were received from 251 investors, more than 5.1 times the initial goal of around $1.5 billion.

The lender's first euro-denominated "social bonds," the proceeds of which will be used for eco-friendly initiatives, was issued at a yield of minus 0.118 percent, the lowest figure reported by any Korean organization. This is a notable feat alongside a yield of 1.316 percent for dollar-denominated bonds with 10-year maturity that hit their lowest point since the 2008 global financial crisis.

"We used the recently issued forex bond as a benchmark, lowering the spread to between 10 and 15 basis points from the previous level," an Eximbank official said. "A high assessment of Korea's containment efforts and robust financial health contributed to lower-yielding bonds issuance. The increase in proceeds will be used to finance small- and medium-sized enterprises hit by the virus."







Ministry of Economy and Finance International Finance Bureau Director General Kim Seong-wook, left, speaks during a briefing at Sejong Government Complex, Tuesday. Courtesy of Ministry of Economy and Finance
Ministry of Economy and Finance International Finance Bureau Director General Kim Seong-wook, left, speaks during a briefing at Sejong Government Complex, Tuesday. Courtesy of Ministry of Economy and Finance

Eximbank Korea issues negative yield global bonds in euros

By Lee Kyung-min

A growing number of state-run and private organizations will be able to borrow foreign funds at a cheaper rate following solid demand for the recent government-issued dollar- and euro-denominated bonds with record-low yields, the finance ministry said Tuesday.

The dual tranche issuance of $1.45 billion (1.7 trillion won) in foreign exchange stabilization fund bonds (forex bonds), Sept. 10, not only attests to foreign investors' high assessment of the Korean economy, but also helps increase the volume of foreign reserve, a key defense mechanism against foreign capital outflow brought on by external shocks due to the global financial market uncertainty.

"The record-low yield on the two key foreign currency-denominated sovereign debt that serves as a benchmark for local state-run and private organizations will help them with cheaper financing, bolstering their effective cost-saving capabilities," Kim Seong-wook, director-general of the International Finance Bureau at the Ministry of Economy and Finance, said during a briefing at Sejong Government Complex.

The assessment came after global investors have shown keen interest in purchasing the recently issued sovereign debt bonds comprising $625 million in 10-year dollar-dominated bonds with a yield of 1.198 percent and 700 million euros in five-year euro-denominated bonds with a negative yield of 0.059 percent.

Korea was the first non-European state to issue euro-dominated bonds with a negative yield.

The ministry initially received purchase requests of $5 billion in dollar-denominated bonds, 5 billion euros in euro-denominated bonds, nearly 10 times greater than the initial issuance volumes of $500 million and 500 million euros, respectively.

The ministry later lowered the final spread between Korea's bonds and the U.S. treasuries with the same maturity to 50 basis points ― from 90 ― and the spread between Korea's and Mid-swap, a benchmark for euro-denominated bonds, to 35 basis points from 60.

Yet it still saw purchase requests 5.8 times greater than the amount offered for dollar-denominated bonds and 7.8 times for euro-denominated ones, an indication of a robust demand from global investors to buy sovereign bonds despite lower-than-expected returns.

Among them are central banks and sovereign wealth funds from countries in Europe, the Middle East and Africa ― a source of new foreign investors to Korea.

Yields on bonds issued by state-run and private entities will be reduced to a degree across the board, given their rates are the sum of forex bond and additional interest payable set depending on individual credit status.

A case in point is a $1.5 billion bond issued by the Export-Import Bank of Korea (Eximbank), Tuesday.

The state lender said it issued 500 million euros in three-year maturity bonds, alongside $400 million in five-year maturity and $500 million in 10-year maturity in dollar-denominated bonds.

Over $7.62 billion in purchase requests were received from 251 investors, more than 5.1 times the initial goal of around $1.5 billion.

The lender's first euro-denominated "social bonds," the proceeds of which will be used for eco-friendly initiatives, was issued at a yield of minus 0.118 percent, the lowest figure reported by any Korean organization. This is a notable feat alongside a yield of 1.316 percent for dollar-denominated bonds with 10-year maturity that hit their lowest point since the 2008 global financial crisis.

"We used the recently issued forex bond as a benchmark, lowering the spread to between 10 and 15 basis points from the previous level," an Eximbank official said. "A high assessment of Korea's containment efforts and robust financial health contributed to lower-yielding bonds issuance. The increase in proceeds will be used to finance small- and medium-sized enterprises hit by the virus."






Lee Kyung-min lkm@koreatimes.co.kr


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