Increased National Bonds for COVID-19 Response Bought by Bank of Korea... "Additional Purchase of 5 Trillion Won" (Comprehensive)

Bank of Korea Expands Simple Purchase of Government Bonds

[Asia Economy Reporter Kim Eunbyeol] The Bank of Korea announced that it will conduct a simple purchase of government bonds totaling around 5 trillion won by the end of the year. This is interpreted as a pre-disclosure of the simple purchase plan until the end of the year amid growing concerns about bond market supply and demand due to the announcement of the largest-ever budget for next year combined with the 4th supplementary budget.

On the 8th, the Bank of Korea stated, "With the resurgence of COVID-19 and increased uncertainty in the financial market, government bond issuance is expected to expand in the future," adding, "The purpose is to proactively mitigate the imbalance in bond supply and demand and sudden fluctuations in market interest rates."

Although it may vary depending on market conditions, the Bank of Korea plans to purchase government bonds at the end of each month until the end of the year. The government bond purchase will be announced on the business day before the auction. A competitive auction will be held using a multiple interest rate method targeting the Bank of Korea's securities simple trading institutions. The purchase scale and items will also be announced at the time of the auction notice.

[Image source=Yonhap News]

Recently, the bond market has shown unstable trends. This is due to expectations that the amount of deficit government bonds issued this year will exceed 100 trillion won and that the supply of government bonds may increase next year. When government bond issuance increases, the market supply grows, and if this volume is not fully absorbed, prices may fall (government bond yields rise).

Due to concerns about bond market supply and demand, government bond yields have been on the rise. On this day, the 3-year government bond yield in the Seoul bond market closed at 0.949% per annum, down 2.4 basis points (1bp=0.01 percentage points) from the previous trading day. The 10-year yield fell by 1.7 basis points to 1.555% per annum. Although government bond yields fell compared to the previous day, they have steadily risen since the end of August, with recent yield levels similar to those in April when COVID-19 concerns peaked.

A Bank of Korea official added, "Apart from simple purchases, if necessary, such as sudden fluctuations in market interest rates, we plan to actively implement market stabilization measures." The Bank of Korea has conducted simple purchases of government bonds four times this year, each amounting to 1.5 trillion won, totaling 6 trillion won.

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