S. Korea confirms foreign appetite in sovereign bonds, prices $1.45 bn at record low rates

2020.09.10 10:50:30 | 2020.09.10 13:58:50

[Graphics by Song Ji-yoon]이미지 확대

[Graphics by Song Ji-yoon]

South Korea issued a dual-currency bond offering worth $1.45 billion at cheapest-ever rates amid overwhelming demand for its high-medium-rated sovereign debt.

The USD-denominated $625 million bonds were priced at a yield of 1.198 percent, 50 basis points over comparable 10-year U.S. Treasury notes and below its initial guidance of 90 basis points, the Ministry of Economy and Finance said Thursday. Orders exceeded $5 billion.

The five-year euro bonds worth 700 million euro ($825 million) were set at a minus yield of 0.059 percent, 35 basis points over Europe’s mid-swap level and below the 60 bp guidance, also drawing over 5 billion euros.

“This bond sale reaffirms foreign investors’ confidence in the strong fundamentals and financial soundness of the South Korean economy,” said Hong Nam-ki, deputy prime minister and finance minister.

The bonds were rated at the third-highest scale by Moody`s at Aa2 and AA by Standard & Poor’s and the fourth-highest AA- by Fitch, in line with their sovereign ratings on South Korea.

BNP Paribas, Bank of America, Citigroup, JP Morgan, Mirae Asset Daewoo and Standard Chartered Bank were joint bookrunners on both tranches.

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The issue was raised to the country’s 2020 ceiling of $1.5 billion due to strong demand, the ministry said.

South Korea last issued sovereign debt in June 2019 worth $1.5 billion. USD offerings previously were priced at 2.871 percent in 2017, 3.572 percent in 2018 and 2.677 percent in 2019.

Korea became the first non-eurozone issuer to offer negative-yielding euro bonds. South Korea last tapped the euro debt market in June 2014.

Finance Minister Hong Nam-ki. [Photo by Yonhap]이미지 확대

Finance Minister Hong Nam-ki. [Photo by Yonhap]

A negative bond yield means that investors would receive less money than the original purchase price upon maturity.

Central banks and sovereign funds were the biggest buyers, the ministry said. European and Middle Eastern investors with previously low Korean holdings also showed avid interest in the latest bond sale, it added.

The local bond market was buoyed by the show of foreign confidence in Korean debt. The yield on the three-year government bond fell 3.4 basis points, 5-year 4.4 basis points and 10-year 3.7 basis points. The Kospi gained 0.7 percent and Kosdaq 0.9 percent in morning trade.

By Kim Hyo-jin

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