Government Moves to Curb Surging Yields... Slashes Government Bond Issuance by 5 Trillion Won Using Excess Tax Revenue

Total Government Bond Issuance Cut by 5 Trillion Won by Maturity
2-Year Bonds Reduced by 1 Trillion Won Each, 3-Year and 5-Year Bonds by 800 Billion Won Each
Longer-Term Bonds (10, 30, and 50-Year) Also Decreased

Lee Hyung-il, Deputy Prime Minister and Minister of Finance and Economy, is taking a commemorative photo with participants before the start of the "Expanded Macroeconomic Fiscal and Financial Meeting" held on the 30th at the Government Seoul Office in Jongno-gu, Seoul. From left, Park Hong-geun, Minister of Planning and Budget; Deputy Prime Minister Lee; Shin Hyun-song, Governor of the Bank of Korea; Lee Eok-won, Chairman of the Financial Services Commission. Ministry of Finance and Economy

The government has decided to reduce the issuance volume of government bonds by 5 trillion won this month, as the upward trend in government bond yields continues. The additional tax revenue, collected this year due to the semiconductor boom and exceeding initial expectations, will be used as the funding source.

On October 1, the Ministry of Finance and Economy announced, "We will reduce the government bond issuance volume for October by 5 trillion won compared to the initial plan, and, after continuing to monitor the market situation, we will consider further reductions in government bond issuance if necessary." By maturity, the reduction amounts are 1 trillion won for 2-year bonds, 800 billion won each for 3-year and 5-year bonds, 700 billion won for 10-year bonds, 700 billion won for 30-year bonds, and 200 billion won for 50-year bonds.

Market participants expect that the government will further reduce the issuance volume of government bonds by maturity in November and December, cutting supply by more than 10 trillion won.

Previously, as a surge in government bond yields persisted, the government announced its intention to use 63.2 trillion won in excess tax revenue to scale back government bond issuance volume.

On September 30, Deputy Prime Minister and Minister of Finance and Economy Lee Hyung-il, Minister of Planning and Budget Park Hong-geun, Bank of Korea Governor Shin Hyun-song, and Financial Services Commission Chairman Lee Eok-won held an Expanded Macroeconomic Fiscal and Financial Meeting, where they stated, "We will closely monitor government bond market trends and implement necessary market stabilizing measures, such as emergency buy-backs or reducing government bond issuance volume using a portion of excess tax revenue."

While the government had announced during next year's budget preparation that it would reduce the government bond issuance for next year by 12.5 trillion won, criticism had been raised that the scale of the reduction was small compared to the 162.3 trillion won in additional tax revenue generated by the semiconductor boom and other factors.

Meanwhile, in October, the government will issue 12 trillion won of government bonds through a competitive bidding process involving primary dealers and another 500 billion won through exchanges.

By maturity, the issuance volumes are 2.1 trillion won for 2-year bonds, 2.4 trillion won for 3-year bonds, 2.2 trillion won for 5-year bonds, 2.1 trillion won for 10-year bonds, 700 billion won for 20-year bonds, 1.8 trillion won for 30-year bonds, 600 billion won for 50-year bonds, and 100 billion won for inflation-linked government bonds.

The government also plans to conduct buy-backs of outstanding 2-year, 3-year, 5-year, and 10-year bonds before maturity for a total of roughly 3.5 trillion won.

No fiscal securities will be issued next month. Fiscal securities, along with temporary borrowings from the Bank of Korea, are used to cover temporary cash shortfalls caused by mismatches between government revenue and expenditure schedules within the fiscal year. The current outstanding balance of fiscal securities is 4 trillion won, and there is no temporary borrowing from the Bank of Korea. As of the average balance for this year (from January 1 to September 30), the figures are 10.5 trillion won for fiscal securities and 3 trillion won for temporary borrowing.

The one-year won-denominated Foreign Exchange Equalization Bond (FX stabilization bond) will also be issued at the same 1 trillion won scale as last month.

This content was produced with the assistance of AI translation services.