After COVID-19, 540 Trillion Surge: "Bond Balance at 2556 Trillion Reaches Absorption Limit... Supply-Demand Deterioration"

[Asia Economy Reporter Lee Seon-ae] As bond yields soar to unprecedented levels, the outstanding amount of bond issuance has also increased to a record high of 2,556 trillion won. Since the COVID-19 pandemic, the bond market size has surged by 540 trillion won, inevitably facing limits in absorbing the volume, and the supply-demand balance in the bond market is expected to worsen further.

According to the Korea Financial Investment Association on the 4th, the outstanding bond issuance as of the previous day was recorded at 2,556.1333 trillion won. Compared to the end of 2019, just before the COVID-19 outbreak (2,015.4526 trillion won), it surged by 540.6807 trillion won. Specifically, the outstanding government bonds increased from 687.8428 trillion won at the end of 2019 to 999.8799 trillion won as of the previous day. This is the result of deficit government bond issuance such as disaster relief funds due to the COVID-19 pandemic. The outstanding special bonds issued by public enterprises and the Korea Housing Finance Corporation also increased by more than 55 trillion won, from 332.2026 trillion won at the end of 2019 to 387.5599 trillion won as of the previous day. Corporate bonds also surged from 290.2064 trillion won at the end of 2019 to 364.4120 trillion won as of the previous day. The outstanding financial bonds issued by banks and card companies also increased by more than 100 trillion won during the same period, from 470.2499 trillion won to 572.1499 trillion won.

The problem is that institutional investors’ capacity to invest has now reached its limit. A bond management officer at a securities firm lamented, "Due to the sharp drop in bond prices, there is no demand," adding, "In a phase where interest rates continue to rise, it is difficult to buy more bonds, so in fact, we have no choice but to wait and watch until the bond market stabilizes." Another official said, "If it becomes difficult to absorb the volume in the bond market and the supply-demand environment worsens, government bond yields will inevitably rise further due to supply-demand disruptions," adding, "This will bring the impact of rising interest rates to the short-term financial market and further increase volatility in the stock market due to interest rate instability."

Issuance of deficit government bonds following the next administration’s supplementary budget proposal is also expected to raise interest rates and increase volatility. Kim Ji-man, a researcher at Samsung Securities, said, "There is no active bond buying from supply-demand participants, and with uncertainty about the scale of the supplementary budget after the new government takes office, it is difficult to determine the direction."

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