South Korea will cut its October treasury bond issuance by 5 trillion won ($3.6 billion) from the original plan, drawing on excess tax revenue generated by the semiconductor boom. The move is intended to stabilize market interest rates, which have risen sharply in recent weeks, by reducing the supply of government debt.
The Ministry of Finance and Economy said on the 1st that it would reduce October treasury bond issuance by 5 trillion won from the previous plan. The government will issue 12 trillion won through competitive bidding involving primary dealers, along with 500 billion won through exchange offers. Competitive bidding alone will fall by 4 trillion won from 16 trillion won in September. The ministry said it would also consider further cuts to bond issuance depending on market conditions.
The government will also expand early redemptions, or buybacks, of treasury bonds. It plans to buy back a total of 3.5 trillion won in off-the-run two-, three-, five- and 10-year issues, up 2 trillion won from 1.5 trillion won last month. By cutting new bond issuance while purchasing outstanding debt before maturity, the government aims to ease supply-and-demand pressure in the bond market.
The government had earlier signaled that it would use part of its excess tax revenue — which reached 63.2 trillion won above the supplementary budget projection — to reduce bond issuance. With domestic treasury yields staying elevated amid rising rates in major economies, the government has now directed some of those funds toward curbing bond supply.
