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(Bloomberg) — The South Korean government started marketing its first-ever Samurai bond Monday, in the latest sign of how President Yoon Suk Yeol is spearheading a transformation in relations with Japan.        

Initial price guidance for the three-year part of the multi-tranche debt offering is 23 to 27 basis points over mid-swaps, according to a person with knowledge of the matter. That’s a much tighter spread than other Samurai issuers’ similar-maturity debt sold this year, helped by Korea’s government having some of the highest credit ratings among emerging economies.  

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The historic debt offering comes as part of broad-based improvement in ties between the two countries since Yoon took office last year, with both sides seeking to move past decades of friction. The issuance of yen bonds by Korean companies has long been affected by the ebb and flow of bilateral political relations. Sales have seen a renaissance in the last 18 months with four Korean firms pricing Samurai bonds including Korea Investment & Securities Co.’s debut notes in July.                

The Korean government announced the yen issuance in June after it agreed with Japan to restore a foreign currency swap deal worth as much as $10 billion. The bond offering is scheduled to price on Thursday after brokers started sounding out investor interest last week.

Japan’s debt markets offer some of the lowest borrowing costs in the world as the central bank sticks to its negative-rates policy even after recently changing its yield-curve control policy to allow the 10-year government bond rate move higher. Sales in the Samurai market have climbed 57% to 845.2 billion yen ($5.8 billion) since the start of the fiscal year in April, with yields that averaging about 0.8% attracting globai issuers, compared with 5.7% for high-grade companies in dollars, Bloomberg-compiled data show. 

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The Korean government bond sale adds to a growing number of sovereigns raising funds in the Samurai market in recent years. Indonesia sold the yen notes earlier this year, while the Philippines and Mexico did deals last year.   

South Korea and Japan are moving toward improving cooperation on issues such as North Korea’s nuclear threat, supply chain challenges and energy security.  

Japanese Prime Minister Fumio Kishida joined Yoon and US President Joe Biden at their first-ever trilateral summit in Camp David last month, where the leaders agreed to augment their relations with an annual leader-level meeting and a new hot line for the allies to share intelligence. The nations held joint military drills at the end of August.   

—With assistance from Daedo Kim.

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