Park Jun-woo, an analyst at Hana Securities, said in a report that "we expect fourth-quarter treasury bond issuance to come in at around 33 trillion won, roughly 13 trillion won below the original plan," according to bond market sources on Oct. 2. This year's treasury bond issuance ceiling stands at 225.7 trillion won, of which 178.8 trillion won had been issued through September. That leaves 46.9 trillion won, from which about 13 trillion won could be trimmed.
A day earlier, the Ministry of Finance and Economy said it would reduce October treasury bond issuance by 5 trillion won from the initial plan, using excess tax revenue from the chip boom. Fiscal projects worth 5 trillion won that were to be funded through bond issuance will instead be covered by the surplus revenue. The ministry added that it could cut issuance further if necessary.
The move comes as domestic yields have surged in step with rising sovereign bond yields in the U.S. and other major economies. Higher treasury bond yields not only raise the government's funding costs but can also push up private-sector borrowing costs, including corporate bonds, bank debentures and loan rates. The reduction is seen as an attempt to steer yields lower by shrinking supply headed for the bond market.
Other analysts also expect issuance to be cut by about 10 trillion won this year. "We estimate issuance could be reduced by about 5 trillion won in October, 5 trillion won in November and 2 trillion won in December compared with existing plans," said Yoon Yeo-sam, an analyst at Meritz Securities. He added that "cuts of more than 10 trillion won are needed to move the bond market."
Treasury bond yields have fallen in response to the government's move. In the Seoul bond market on the morning of Oct. 2, the three-year treasury bond yield stood at 3.966%, down 0.051 percentage point from the previous day. The five-year yield fell 0.049 percentage point to 4.156%, while the 10-year yield declined 0.053 percentage point to 4.386%.
