South Korean state-run banks and public institutions are postponing overseas bond issuances as the war between the United States and Iran sends market interest rates surging on stagflation concerns. Market observers expect these institutions to take a wait-and-see approach rather than rushing to issue foreign currency-denominated bonds under unfavorable conditions.
"Korea Gas Corporation and several other institutions were preparing to issue foreign currency bonds, but I understand they have postponed their plans due to the Iran situation," a bond market source said Wednesday.
Korea Gas Corp. has confirmed it will repay a $200 million dollar-denominated bond maturing this month without refinancing. Analysts interpret the move as an effort to maintain flexibility in foreign currency funding amid the Iran crisis. A company official described it as "a bond that was already scheduled for repayment," but market observers expect the utility to eventually return to the foreign bond market.
Export-Import Bank of Korea has also tentatively delayed a dollar-denominated supply chain stabilization fund bond issuance originally scheduled for early this month. The bank's foreign bonds serve as benchmarks for Korean paper, making timing particularly critical. "The deteriorating Middle East situation had a significant impact," an Eximbank official said. "This is also our first foreign currency issuance of supply chain bonds, so we continue to monitor the situation."
Korea Maritime Promotion Corp. plans to begin roadshows for overseas bond issuances next month but has yet to set a specific schedule amid rapidly changing market conditions.
The delays stem primarily from rising U.S. Treasury yields driven by stagflation fears following oil price increases. The 10-year U.S. Treasury yield exceeded 4.2% as of March 16. Yields on Korean public enterprise bonds have also climbed. The three-year AAA-rated public enterprise bond yield stood at 3.382% on Feb. 27, the day before U.S. airstrikes on Iran. It jumped to 3.525% on March 3, the first trading day after the strikes, and reached 3.637% by March 16—up 0.457 percentage points from year-end 2025.
The won-dollar exchange rate has grown increasingly volatile. The won breached 1,500 per dollar intraday on March 16 in Seoul trading. Korea's five-year credit default swap premium closed at 29.21 basis points in New York on March 16, up approximately 17.4% from late February. At one point, Korea's CDS premium posted the largest monthly increase among countries outside Israel and the Middle East, reflecting Korea's heavy dependence on Middle Eastern crude oil.
Issuing bonds at elevated rates under current conditions could damage confidence in Korean markets, officials said. Public institutions judge that while Korea's economic fundamentals remain sound, it is prudent to wait out the storm.
"Issuance would be possible if forced," a financial industry source said. "But if Korean paper fails to receive proper valuation while markets and the exchange rate are volatile due to the Iran situation, this could backfire in terms of sovereign creditworthiness."
The Ministry of Finance and Economy is reportedly coordinating issuance schedules behind the scenes to prevent overlap among state banks and public institutions. "If two institutions issue foreign bonds in the same week, it could become self-defeating," a senior financial industry official said. A ministry official responded that "we are closely monitoring market conditions."
State banks face mounting pressure to raise foreign capital. Korea Development Bank plans to raise $9.4 billion through foreign bond issuances this year, up 6.8% from last year's $8.8 billion target. Eximbank aims to issue $14 billion in foreign bonds. Combined, the two policy banks must raise over $20 billion from bond markets. With the weakening won driving increased demand for foreign currency funding, these institutions have little choice but to proceed with issuances eventually.
The Iran situation shows signs of prolonging, making won weakness and slower economic growth likely, analysts said. NH Financial Research Institute forecast Wednesday that if the Iran war lasts more than three months, the won-dollar rate will exceed 1,500 per dollar and economic growth will fall by at least 0.3 percentage points. In a worst-case scenario of war lasting over one year, the institute warned of global stagflation and Korean growth collapsing to near zero percent.
