Elevation of Sovereign Credit Rating
According to the Ministry of Strategy and Finance on Oct. 12, 50-year-maturity government bonds were issued on Oct. 11 and their monetary value stood at 1.1 trillion won (US$1 billion) at their interest rate of 1.574 percent. They were decided based on the results of a successful bid for 50-year-maturity government bonds and the standard interest rate of 10-year-maturity government bonds. The interest rate of 50-year-maturity bonds is 4bp higher (1bp=0.01 percentage points) compared to the average interest rate of 1.534 percent of 10-year-maturity government bonds in three recent days in and out of the market.
Most of the 50-year-maturity government bonds are expected to be acquired by Korean insurers. This is because if the International Financial Reporting Standards 4 (IFRS4) come into effect in 2020, Korean insurers feared to see their solvency margins fall due to a sharp rise in debts can that reduce maturity nonconformity risk by transferring 50-year-maturity government bonds.
Among 34 OECD member nations, since 2014, ten countries including Korea have issued government bonds that will mature after more than 50 years.
It is expected that as the Korean government’s issuance of ultra-long government bonds verifies its fund-raising capabilities and government bond management capabilities, Korea’s sovereign credit rating will be elevated among foreign investors.