Net Increase in Government Bonds Exceeds 100 Trillion Won for 3 Consecutive Years... Bond Yields to Rise Further

104.7 Trillion Won Net Increase in Government Bonds Including This Year's Supplementary Budget
Government Bond Supply Bomb Expected to Worsen
Bond Yields Rapidly Rise, 3-Year Yield Surges to 2.264%

[Asia Economy Sejong=Reporter Kwon Haeyoung] The net increase in government bonds is expected to exceed 100 trillion won for the third consecutive year. Since 2020, when COVID-19 occurred, the market has been unable to absorb the volume of government bonds due to seven supplementary budget (Chugyeong) formations, causing bond yields to soar.

According to the "2022 First Supplementary Budget Review Report" by the Ministry of Economy and Finance and the National Assembly Budget and Accounts Special Committee on the 11th, the net increase excluding the refinancing portion of government bonds this year amounts to a total of 104.7 trillion won, combining the net increase plan based on the 2022 main budget (93.4 trillion won) and the increase from this supplementary budget (11.3 trillion won).

The issuance of government bonds is divided into "refinancing," which involves issuing new bonds to repay existing ones, and "net increase," which effectively raises the national debt. The net increase in government bonds was 20.3 trillion won in 2018 and 44.5 trillion won in 2019, but surged to 115.3 trillion won in 2020, the first year of the COVID-19 outbreak, 120.6 trillion won in 2021, and 104.7 trillion won this year including the January supplementary budget. This marks over 100 trillion won for three consecutive years.

Moreover, with political demands to increase the supplementary budget (35 to 50 trillion won), the government bond supply bomb is expected to intensify, causing bond yields to rise rapidly. According to the Korea Financial Investment Association, the 3-year government bond yield was 2.264% as of the previous day, a sharp increase of 0.466 percentage points compared to 1.798% at the end of last year. On the 8th, it closed at 2.303%, surpassing 2.3% for the first time in 3 years and 9 months. Corporate bond yields (AA- rated 3-year bonds) also rose from 2.415% to 2.850%, an increase of 0.435 percentage points, worsening companies' financing conditions. There are concerns that the government's election-related money injection will lead to a crowding-out effect, shrinking private investment.

Since an increase compared to the original government supplementary budget seems inevitable, the net increase in government bonds this year is bound to exceed 104.7 trillion won. Professor Sung Tae-yoon of Yonsei University’s Department of Economics said, "The early supplementary budget is already unusual, and if it is increased, government bond issuance will rise further," adding, "Ultimately, this will stimulate additional increases in bond yields."

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