Ministry of Finance and Economy

On July 8, the government successfully issued EUR 1.7 billion (approximately USD 1.94 billion) in Foreign Exchange Equalization Fund Bonds (EUR FX Fund Bonds).   The government issued the bonds in a dual-tranche offering, consisting of EUR 700 million in three-year bonds and EUR 1 billion in seven-year bonds.   Maturity                     Amount Issuance Rate1) Coupon Rate2) 3Y EUR 700 million 3Y EUR Mid-Swap3) + 10bp = 2.981% 2.875% 7Y EUR 1 billion 7Y EUR Mid-Swap3) + 28bp = 3.285% 3.250%   1) Issuance rate: the benchmark rate for the same currency and maturity plus a spread. 2) Coupon rate: the interest rate paid to bondholders. 3) EUR Mid-Swap: the midpoint of bid and offer rates for euro interest rate swaps (IRS), used as the benchmark rate for euro-denominated bond issuance.   This issuance carries the following implications:   First, the government set a new benchmark for Korean euro-denominated bonds by issuing a record EUR 1.7 billion in EUR FX Fund Bonds. In particular, the seven-year tranche was the largest-ever single tranche, surpassing the previous record of EUR 750 million set in 2014. By establishing a solid benchmark in the euro market – one of the world’s two major funding currencies alongside the U.S. dollar – the government has further strengthened the foundation for Korean issuers to raise foreign-currency funding under more stable conditions.   Second, both the three-year and seven-year tranches achieved the lowest-ever spreads for their respective maturities. Following February’s successful USD FX Fund Bond issuance, the government likewise achieved new record-low spreads in the euro market, pricing the three-year and seven-year tranches at 15bp and 24bp below the previous record lows established in 2025 (3-year: +25bp; 7-year: +52bp), respectively. Notably, the spreads were at or below those of outstanding bonds with comparable maturities issued by major advanced economies, international organizations, and highly rated public-sector issuers, further reaffirming the international financial market’s strong confidence in the Korean economy. As the spreads on FX Fund Bonds serve as a benchmark for overseas funding by Korean issuers, the tighter spreads achieved in this issuance are expected to reduce foreign-currency funding costs across the broader Korean market.   Third, the issuance confirmed robust demand for the FX Fund Bonds despite challenging market conditions, including heightened external uncertainty stemming from renewed tensions in the Middle East. Ahead of the issuance, the government actively presented Korea’s growth strategy to leading global institutional investors, highlighting its AI transformation initiative aimed at making Korea one of the world’s top three AI powers (AI G3), the competitiveness of its advanced manufacturing sector, and capital market advancement. As a result, the bonds were priced at spreads 4bp tighter than the initial price guidance for both tranches. In addition, by successfully issuing the bonds under the SSA* format for the third consecutive year, the government further strengthened its standing as a leading sovereign issuer while broadening its base of high-quality investors.   * SSA (Sovereigns, Supranationals and Agencies): A category of high-quality institutional investors in the global bond market, including sovereign governments, central banks, sovereign wealth funds, supranational organizations, and policy financial institutions.   Fourth, the issuance proactively secured additional foreign-currency resources to support Korea's external soundness. In particular, by securing funding for the redemption of the EUR 700 million euro-denominated FX Fund Bonds maturing this October more than three months in advance of their maturity, the government has ensured stable external payment capacity without refinancing pressure. The foreign-currency assets raised through this issuance will serve as a strong buffer against unexpected changes in external conditions, helping the Korean economy respond resiliently to external shocks.   With this issuance, the government has successfully completed its 2026 FX Fund Bond issuance program totaling the equivalent of USD 5 billion – the largest annual issuance of foreign-currency FX Fund Bonds on record. Successful placements in both the U.S. dollar and euro bond markets at record-low spreads underscored global investors’ strong confidence in Korean credit. The government will continue to closely monitor developments in international financial markets, maintain a stable foreign-currency funding base, and steadfastly support the external soundness of the Korean economy. Please refer to the attached files. 

On July 8, Deputy Prime Minister and Minister of Finance and Economy Koo Yun Cheol convened a joint Market Situation Review Meeting[1] with relevant government agencies at the Government Complex Seoul to review recent developments in the financial and foreign exchange (FX) markets and discuss policy responses.   Participants assessed that the Korean economy continues to show solid momentum, supported by record-high exports and a record current account surplus. However, they noted that volatility in the domestic financial and FX markets remain elevated amid expectations of higher global policy interest rates and continued foreign capital outflows. While closely monitoring the possibility of renewed geopolitical tensions, they agreed to pursue a well-balanced macroeconomic policy mix, taking into account growth, inflation, financial market stability, and people’s livelihoods, and to continue efforts to maintain stability in individual market segments.   With regard to the stock market, it was assessed that volatility had increased somewhat amid a market correction, driven by profit-taking and portfolio rebalancing by foreign and institutional investors following the recent sharp rally, as well as evolving global AI market expectations. They agreed to closely monitor risk factors that could lead to excessive volatility in the stock market going forward.   Turning to the bond market, the assessment was that volatility in government bond yields has moderated since the beginning of July. However, close monitoring of the market will continue, as changes in domestic and global monetary policy stances remain key risk factors. Every effort will also be made to maintain market stability by adjusting the share of long-term government bond issuance in line with market supply and demand conditions.   In the FX market, it was noted that volatility has increased amid continued foreign equity sales driven by gains in the value of foreign investors’ equity holdings, as well as the strength of the U.S. dollar and the weakness of the Japanese yen. Participants shared the view that the launch of 24-hour FX trading on July 6 would significantly improve the convenience of won-denominated transactions. To respond to potential volatility during overnight trading hours, they decided to substantially strengthen the 24-hour monitoring framework. In addition, the roadmap for the internalization of the Korean won will be finalized and announced within July to enhance the won’s convertibility and promote its use in current and capital account transactions.   Furthermore, the meeting reviewed business conditions across major industries. Participants assessed that, amid diverging conditions between the non-IT sector and the semiconductor-led IT sector, the growing weight of semiconductors has become a source of increased financial market volatility, as movements in the semiconductor sector have an increasingly greater impact on the overall stock market. Looking ahead, they recognized the need not only to bolster the competitiveness of key industries such as semiconductors and AI, but also to actively identify and foster next-generation growth engines in non-IT sectors, including biotechnology, defense, and aerospace. [1] Governor of the Bank of Korea (BOK), Vice Chairman of the Financial Services Commission (FSC), and First Senior Deputy Governor of the Financial Supervisory Service (FSS). Please refer to the attached files. 

On July 6, the first day of the launch of the 24-hour foreign exchange (FX) market, Deputy Prime Minister and Minister of Finance and Economy Koo Yun Cheol visited the FX dealing room at Hana Bank headquarters in Seoul at 7:30 a.m., during the newly extended trading hours, to hear the views of market participants, including domestic banks, overseas branches, and exporting companies, on the launch of the 24-hour FX market and to encourage dealing room staff.   Deputy Prime Minister Koo emphasized that the launch of the 24-hour FX market is a reform measure that reflects confidence in the sound fundamentals of the Korean economy, including its robust external soundness and record-high current account surplus, as well as strong demand from foreign investors for Korea’s FX and capital markets, as evidenced by its inclusion in the World Government Bond Index (WGBI).   He further noted that the launch of the 24-hour FX market goes beyond simply extending trading hours and serves as a key piece of market infrastructure for bringing the accessibility and convenience of Korea’s FX market in line with those of advanced markets. He described it as “the starting point for the Korean won’s greater global role.” He also stressed that enabling domestic and international investors, as well as importers and exporters, to conduct FX transactions at any time would ultimately enhance the attractiveness of Korea’s capital market and the Korean won.   Deputy Prime Minister Koo also commended the close cooperation among all market participants – including the government, the Bank of Korea, banks, securities firms, brokerage companies, and importers and exporters – in preparing for the launch of the 24-hour market through revisions to relevant laws and regulations, internal rules and business practices, workforce expansion, and pilot trading. He noted that the 24-hour market would provide new benefits and opportunities for market participants by helping importers and exporters manage FX risks in real time and allowing domestic financial institutions and brokerage firms to expand their business operations.   Deputy Governor of the Bank of Korea Kwon Min Soo said he expects the launch of 24-hour trading to broaden and deepen Korea’s FX market, highlighting the need for the Bank of Korea and the government to continue their policy efforts to help realize these expectations. He also noted that they would closely monitor developments in the market following the launch of 24-hour trading and assess its impact.   Participants, including representatives from Hana Bank, exporting companies, and FX dealers from overseas branches, expressed their support for the launch of 24-hour trading, recognizing its objective of better meeting market demand. They added that they would actively leverage the new FX market infrastructure, including 24-hour trading, to quickly adapt to the evolving trading environment and strengthen the global competitiveness of Korean banks and businesses.   Last but not least, Deputy Prime Minister Koo underlined that maintaining the stability of the FX market and ensuring the successful implementation of the new trading framework are the government’s top priorities. He added that the government would provide round-the-clock market monitoring and support the smooth operation of 24-hour trading, while continuing to implement other FX market reform measures without disruption, including the offshore won settlement system, which will enable 24-hour settlement (fund transfers) upon its planned full launch in January 2027. Please refer to the attached files.