Government Prices a US$3bn Dollar Bond... Largest-Ever Size in 17 Years

The Ministry of Economy and Finance said on the 6th that it issued US$3 billion of dollar-denominated Foreign Exchange Stabilization Fund bonds on the 5th. The deal is the largest single issuance since 2009 (US$3 billion).

On the day, Finance Minister and Deputy Prime Minister Koo Yun-cheol wrote on X (formerly Twitter), “Yesterday we issued US$3 billion of Foreign Exchange Stabilization Fund bonds,” adding, “There is no room for empty boasts when money is at stake.”

Foreign Exchange Stabilization Fund bonds are government-issued securities aimed at stabilizing the FX market and serve as a funding source for the Foreign Exchange Stabilization Fund. When the exchange rate swings sharply, the government and the Bank of Korea use FX reserves—such as those held in the Fund—to trade dollars and smooth market volatility.

Late last year, the National Assembly passed the 2026 budget bill and raised this year’s issuance cap for foreign-currency-denominated Foreign Exchange Stabilization Fund bonds to US$5 billion from US$1.4 billion. A ministry official said the government “preemptively and substantially expanded FX reserves, which serve as an external safety buffer including FX-market stabilization,” adding that it began preparations to issue the bonds from late last year “with the possibility of increased market uncertainty in mind.”

As volatility rose—such as when the won-dollar rate topped the 1,480 won level intraday in December—markets have viewed the FX authorities as having moved from verbal intervention to actual intervention. Actual intervention refers to directly supplying dollars to the market, which inevitably draws down FX reserves.

Indeed, as of end-January, Korea’s FX reserves stood at US$425.91 billion, down US$2.15 billion from a month earlier. Analysts say the latest issuance has secured the government additional “dry powder” needed to fund investment in the US and to stabilize the FX market.

The government split the issuance into US$1 billion of three-year notes and US$2 billion of five-year notes. In particular, the three-year tranche was priced at a spread of single digits (+9bp) over US Treasury yields. A ministry official said a spread of around 10bp over Treasuries is “at a level that is lower than or similar to that of top-rated international organizations or other advanced-economy governments and agencies,” adding that it “suggests there is absolutely no problem with (Korea’s) ability to raise foreign currency in international financial markets.”