Borrowing conditions in the dollar bond market improved after Korea secured expanded currency swaps with Japan and China in October, local banks said Tuesday.

Commercial banks said Korea’s $300 billion-plus foreign exchange reserves and the expanded currency liquidity through currency swaps are lowering funding costs for them.

“We saw an immediate bounce of interest in the secondary buying of dollar-bonds on Oct. 19 when market heard of Seoul’s expanded currency swap with Japan from $13 billion to $70 billion,” a local bank said.

State-run Korea Development Bank on Oct. 28 sold 5.5-year, $1 billion of bonds denominated in U.S. dollar, snapping prolonged concerns about anemic demand for investing in the dollar from the uncertainties over Europe and the U.S.

The Finance Ministry said the renewed interest in dollar bonds here reflects improved investor confidence about Korea’s liquidity management. Korea and China on Oct. 26 agreed to double their bilateral currency swap to 64 trillion won ($56.65 billion), in a deal meant to mitigate external risks from the Europe and the U.S.

“Korean companies and state-run banks will be able to issue dollar bonds at lower costs as the currency swaps would give them stronger bargaining power,” a Finance Ministry official said.

“Borrowing conditions will continue to improve as Europe begins to implement their plans to solve debt crisis.”

The enlarged currency swap agreements with China and Japan ramp up Korea’s financial safety net measures after debt concerns in Europe and U.S. sent shockwaves to Asian markets in the recent months.

“Buying of Korea-issued dollar debt will continue to pick up. Strengthened foreign exchange liquidity helps, but it has got to do with how fast business conditions improve in the U.S. and Europe,” a bank official said.

By Cynthia J. Kim (cynthiak@heraldcorp.com)