The government has successfully issued the largest-ever euro-denominated foreign exchange stabilization bonds, securing funds to repay a tranche maturing in October while building up foreign-currency reserves to shore up external soundness against global uncertainty.

The Ministry of Economy and Finance said Thursday it had successfully issued 1.7 billion euros ($1.94 billion) in euro-denominated foreign exchange stabilization bonds.

The central building of the Government Complex Sejong in Eonjin-dong, Sejong [Newsis]
The central building of the Government Complex Sejong in Eonjin-dong, Sejong [Newsis]

The bonds were issued in two tranches — 700 million euros with a three-year maturity and 1 billion euros with a seven-year maturity — marking the largest euro-denominated foreign exchange stabilization bond issuance on record. The seven-year tranche also broke the previous record of 750 million euros set in 2014.

Spreads on both the three-year and seven-year tranches came in at all-time lows for their respective maturities. Following the dollar-denominated issuance in February, the euro offering beat the previous record lows set in 2025 — 25 basis points for the three-year and 52 basis points for the seven-year — by 15 basis points and 24 basis points, respectively.

The seven-year spread of 28 basis points came in below the secondary-market spreads of 35 basis points each on similarly dated bonds issued by the Canadian provinces of Quebec and Ontario, which carry the same credit rating as South Korea. The government said it expects the tighter spreads to translate into lower foreign-currency borrowing costs for Korean issuers broadly, as the bonds serve as a benchmark for overseas funding rates.

Strong investor demand materialized despite challenging issuance conditions, including renewed tensions in the Middle East. The government said it held roadshows for global institutional investors ahead of the issuance, presenting South Korea's growth strategy — including plans to foster the AI industry, strengthen advanced manufacturing competitiveness and develop capital markets — and ultimately priced both tranches 4 basis points below the initial guidance.

The government also said it successfully issued under the SSA (sovereigns, supranationals and agencies) format for the third consecutive year, expanding its high-quality investor base.

The proceeds will be used to repay a 700 million euro tranche of foreign exchange stabilization bonds maturing in October. By securing the repayment funds more than three months in advance, the government said it can maintain stable external payment capacity without refinancing pressure. The foreign-currency assets raised are expected to serve as a buffer against unforeseen changes in external conditions.

With this issuance, South Korea has completed its full-year foreign exchange stabilization bond program of $5 billion equivalent for this year — the largest annual foreign-currency issuance on record. The government raised funds stably in both dollar and euro markets while achieving record-low spreads in each.

"We have reaffirmed the robust confidence of global investors in Korean paper," the government said. "We will continue to closely monitor international financial market conditions, maintain a stable foreign-currency funding base, and steadfastly support the external soundness of the Korean economy."


y2k@heraldcorp.com