By Jihoon Lee, Cynthia Kim and Yena Park
SEOUL, Feb 4 (Reuters) – South Korea’s vice welfare minister said she hopes the National Pension Service (NPS) will start issuing foreign-currency bonds by the end of the year, a move that will strengthen efforts to diversify financing amid rising exchange-rate volatility.
“The sooner, the better. It would be ideal to do so by the end of this year, as long as revision of relevant laws takes place swiftly,” First Vice Minister of Health and Welfare Seuran Lee told Reuters on Tuesday.
Lee’s remarks on the timeline are the first from a government official on the fund’s unprecedented dollar-bond issuance plans. A frail won has been exerting pressure on the NPS, the world’s third-largest pension fund, to better manage its foreign exchange portfolios to stabilise the currency market.
A weak won has complicated Seoul’s plans to invest $350 billion in U.S. industries under a trade deal with Washington, amid concerns that additional fund outflows could further weaken the won.
Lee chairs the fund’s operational advisory committee, a group that reviews any investment and management changes sought at the 1,437.9 trillion won ($992.24 billion) pension fund.
The won cut early losses after Lee’s comments to trade at 1,449.8 per dollar as of 0626 GMT, down 0.2%. The won had fallen as much as 0.5% earlier in the session.
The won has dropped about 7% against the dollar since mid-2025, and the fund has been selling U.S. dollars in the foreign exchange forwards market to support the currency.
MIRRORS CANADIAN FUND STRATEGY
The NPS has been carrying out a feasibility study to start issuing foreign-currency bonds for the first time, while awaiting amendment of the Pension Act by the National Assembly.
While details such as issuance size remained undecided, Lee said it “would make sense to put a ceiling for that, as a proportion of the fund’s overseas investment size.” That would mirror a strategy used by the Canada Pension Plan Investment Board.
“Since it is selling bonds, yes it is leveraging but we can borrow against the fund’s assets,” Lee said, hinting that the NPS’s dollar-denominated assets could be used as collateral.
The issuance aligns with the pension fund’s broader goal of adjusting its asset allocation.
The welfare ministry last week lowered the year-end target for overseas stock exposure to 37.2% from 38.9%, while raising the target for domestic equities. The KOSPI rose 76% last year to post its biggest jump since 1999, outperforming global peers.
“We cut the size of overseas investment for this year because of pressure on the foreign exchange market, but if we can issue foreign currency bonds, that issue will be resolved to some extent.”
“We’re trying to find middle ground somewhere. It’s kind of a balanced approach that isn’t too burdensome for the financial markets but also protects our returns,” Lee said.
FX HEDGING IN FOCUS
She highlighted the need for a review of the NPS’s strategic currency hedging policies.
“What we are currently doing in terms of currency hedging is responding flexibly to market conditions. None of this is a mechanical decision in nature.”
Such hedging involves selling dollar forward contracts to increase the supply of dollars and slow the won’s fall.
Key decisions affecting the fund’s investment returns or leveraging must be approved by the National Pension Fund Management Committee, which is chaired by the welfare ministry.
Lee said the welfare ministry, NPS, finance ministry and central bank will hold their first official meeting as part of a four-way consultative body on Thursday, to address financial market stability.
($1 = 1,449.1500 won)
(Reporting by Jihoon Lee, Cynthia Kim and Yena Park; Editing by Ed Davies and Jacqueline Wong)
