September 30, 2016 / 6:26 AM / 10 months ago

UPDATE 1-High demand for S.Korea's first 50-year bond pushes down yield

3 Min Read

* S.Korea to issue its first 50-year bond on Oct 11

* Spread for 50-year bond to be 4 bps over 10-yr notes

* Amount of issuance is 1.1 trillion won (Adds analyst comment, details on bond issuance)

By Cynthia Kim

SEOUL, Sept 30 (Reuters) - The premium for holding South Korea's first 50-year treasury bonds will only be 4 basis points over benchmark 10-year notes, the nation's finance ministry said on Friday, indicating strong demand for "super long" bonds.

The ministry said the one-off sale of 1.1 trillion won ($1.00 billion) worth of the nation's longest-ever maturity bonds will take place on Oct. 11. The final yield will be 4 basis points plus the average yield for the benchmark 10-year notes for the preceding three business days.

Investor demand for ultra-long securities has been rising as aging populations and persistently low interest rates drive life insurers and other yield-hungry investors towards longer-dated notes. Negative interest rates in Japan and Europe are also boosting investor appetite at the long end of the curve.

The planned issuance is unprecedented for Asia's fourth-largest economy, where the longest existing maturity is 30 years, which it started issuing on a regular basis only in 2012.

South Korea's 10-year bonds yielded 1.456 percent as of Thursday's close, according to the Korea Financial Investment Association (KOFIA).

Given the small spread, the yield for the 50-year notes could be similar to that for the 30-year notes, at 1.499 percent as of end-Thursday.

Yoon Yeo-sam, a fixed income analyst at Mirae Asset Daewoo Securities in Seoul, said the government was unlikely to issue the super-long bonds on a regular basis, despite strong investor appetite.

"The government is worried about the extra burden it would face once interest rates go up," Yoon said.

"Instead, the finance ministry may choose to issue the 50-year notes whenever they see the need."

South Korea's finance ministry said the issuance would help boost government finances as social welfare costs are set to rise with a population aging at the fastest pace among advanced economies.

The extra yield investors demand to hold South Korea's 30-year bonds over 3-year notes was at 20 basis points as of Thursday, narrowing from more than 90 basis points in Oct. 2013, KOFIA data shows.

That also is smaller than in the United States, where spreads for similar securities stand at 143 basis points as of Sept 29.

Since 2014, nine countries in the OECD group of rich nations have sold securities with maturities of 50 years or longer, including the United Kingdom, France and Switzerland, South Korean finance ministry data shows.

China and Thailand have also issued 50-year debt. The longest bond duration in Japan, where the fast-aging population is shrinking, is 40 years.

$1 = 1,097.8300 won Additional reporting by Christine Kim; Editing by Tony Munroe & Shri Navaratnam

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