The won steadied as plans for NPS dollar bond issuance raised hopes of reduced FX pressure.
Summary:
South Korea’s won pared losses after reports the NPS may issue dollar bonds
Pension fund aims to diversify funding amid FX volatility
Dollar bond issuance could ease pressure on the won
Review of FX hedging strategy now under way
Authorities step up coordination on currency stability
South Korea’s currency trimmed earlier losses after reports that the National Pension Service is moving closer to issuing foreign-currency bonds, a step seen as potentially easing pressure on the won amid persistent exchange-rate volatility. The comments marked the first time a government official has publicly outlined a possible timeline for the fund’s unprecedented entry into offshore debt markets.
Officials indicated the pension fund hopes to begin issuing dollar-denominated bonds by the end of this year, subject to swift legislative changes. The move forms part of broader efforts to diversify funding sources and better manage foreign exchange exposure at the world’s third-largest pension fund, which oversees assets of nearly 1.44 quadrillion won.
The won has fallen around 7% against the dollar since mid-2025, creating challenges for both policymakers and institutional investors. Currency weakness has complicated South Korea’s overseas investment plans and increased sensitivity around capital outflows. In response, the pension fund has been actively selling dollars in the FX forwards market to support the currency, a strategy that has drawn growing attention from markets.
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Dollar bond issuance by the National Pension Service would allow the fund to raise foreign currency directly, reducing the need to convert won into dollars when investing abroad. This can lessen immediate demand for dollars in the spot market, helping stabilise the won. In addition, borrowing against existing overseas assets provides funding flexibility without triggering fresh FX outflows, a dynamic that markets typically view as currency-supportive.
Officials also signalled that the fund is reviewing its longer-term currency hedging framework. While FX hedging has so far been conducted flexibly rather than mechanically, authorities acknowledged that a reassessment is needed to ensure the strategy remains effective as market conditions evolve. Hedging operations have involved selling dollar forwards to increase dollar supply and slow the pace of won depreciation.
The potential bond issuance mirrors approaches used by other large global pension funds, including Canada’s, and would likely be capped as a proportion of the fund’s overseas investment exposure. Alongside this, asset allocation targets have been adjusted to slightly reduce overseas equity exposure while lifting domestic equity weightings, reflecting sensitivity to currency conditions.
A new four-way consultative body involving the finance ministry, welfare ministry, central bank and pension fund is set to meet this week to coordinate responses to market volatility. For now, the prospect of offshore issuance has offered some near-term relief for the won, even as broader currency pressures remain tied to global dollar dynamics.
