South Korea sells $827 mn worth of euro-currency bonds with negative yield

The South Korean government has issued euro-denominated bonds worth 700 million euros ($827 million) at a negative interest rate, becoming the first non-European country to sell negative-yielding sovereign bonds, the finance ministry said on Sept. 10.

The five-year euro-denominated bonds carry a yield of minus 0.059%, or 35 basis points above the five-year euro mid-swap rate, which means the bondholders will pay 702 million euros for the new sovereign debt and at maturity receive the face value of 700 million euros, the ministry said in a statement.

Mirae Asset Daewoo, Bank of America, Standard Chartered, Citigroup Global Market Securities, BNP Paribas and JPMorgan handled the global bond sale.

The bond sale marked the country’s first sovereign debt sale in euro since the issuance of 750 million euro bonds in June 2014.

The euro-denominated debt sale is part of the government’s treasury issues worth a combined $1.45 billion in dual tranches this week, which break down into $625 million in 10-year dollar-denominated bonds and 700 million euro bonds with a five-year maturity.

The 10-year dollar bonds were sold at 1.198%, or 50 basis points above the 10-year US Treasury yield. That also marked a record-low interest rate for the country’s global bond issues. Last year, South Korea sold $1 billion in 10-year dollar bonds at 2.677%.

The two-tranche issues, rated Double-A with a stable outlook, were more than five times oversubscribed. Major buyers of the bonds were central banks and sovereign wealth funds, mostly from Europe, the Middle East and Africa.

After the new bond issue, the outstanding balance of the South Korean government’s foreign-currency bonds will swell to 11.5 trillion won ($9.7 billion), the largest amount in 13 years. South Korea spends an average 300 billion won ($252 million) annually to service global debts.

Separately, South Korea is expected to sell treasury bonds in the local currency to finance the fourth supplementary budget of 7.8 trillion won for this year.

Foreign-currency debts are not allowed to be used to finance government spending under the law.

Write to Jinsung Kim at Jskim1028@hankyung.com