Increasing the Supply of 5-Year Government Bonds for Individual Investors

5-Year Bonds Increased by 10 Billion KRW,
20-Year Bonds Reduced

The government is expanding the issuance volume of the 5-year "National Bonds for Individual Investors." This follows the successful oversubscription of the 5-year bonds, which were introduced earlier this month and broke the long-standing sluggish sales of long-term bonds.

On the 28th, the Ministry of Economy and Finance announced that it will issue a total of 120 billion KRW in April for individual investor national bonds, with 70 billion KRW for 5-year bonds, 40 billion KRW for 10-year bonds, and 10 billion KRW for 20-year bonds. The 5-year bond volume was increased by 10 billion KRW compared to the previous month, while the 10-year and 20-year bonds were maintained at similar levels or reduced.

The government's decision to increase the 5-year bond volume aims to enhance the popularity of national bonds for individual investors. Starting this month, in addition to the previously issued 10-year and 20-year bonds, a 5-year short-term bond was added with the same tax-exempt benefits, and the annual purchase limit per person was raised from 100 million KRW to 200 million KRW.

The newly introduced 5-year bonds attracted 115 billion KRW in funds against a target of 60 billion KRW, leading the overall success. The competition rate reached 1.453 to 1. Due to oversubscription, 79 billion KRW, more than initially planned, was allocated to the 5-year bonds. A Ministry of Economy and Finance official explained, "Considering the high interest from individual investors, as the newly launched 5-year bonds were oversubscribed compared to the initial issuance plan, we decided to increase the issuance volume."

On the other hand, both the 10-year and 20-year bonds continue to experience long-term undersubscription. For the 10-year bonds, the competition rate dropped to 0.29 to 1 in September last year, just four months after introduction, and undersubscription has occurred for five consecutive months up to this month (no issuance in December). The 20-year bonds have faced undersubscription for eight consecutive months since their introduction up to this month.

National bonds for individual investors have relatively low investment appeal during periods of falling interest rates because capital gains from bond price fluctuations cannot be expected. A financial investment industry official said, "Individual investor national bonds have low investment appeal during periods of falling interest rates because the opportunity to sell bonds at a profit when prices rise is blocked," adding, "Going forward, the level of the additional interest rate will be a key factor for popularity."

Meanwhile, the coupon rates for the April issuance of national bonds for individual investors will apply the winning bid rates of the same maturity government bonds issued in March (5-year 2.680%, 10-year 2.830%, 20-year 2.700%). Considering market conditions, the additional interest rates will be 0.35% for the 5-year bonds, and 0.35% and 0.5% for the 10-year and 20-year bonds, respectively. The applied rates at maturity will be 3.030% for the 5-year bonds, and 3.180% and 3.200% for the 10-year and 20-year bonds, respectively.

Accordingly, the pre-tax yields at maturity will be approximately 16% (annual average yield 3.2%) for the 5-year bonds, about 37% (annual average yield 3.7%) for the 10-year bonds, and about 88% (annual average yield 4.4%) for the 20-year bonds.

National bonds for individual investors are products that offer benefits such as coupon rates, additional interest rates, and compound interest applied annually if held until maturity. Interest income up to 200 million KRW is subject to a separate tax rate of 14%, so investors do not need to worry about comprehensive financial income taxation. However, to encourage holding until maturity, principal and interest are paid in a lump sum on the maturity date. These bonds cannot be traded in the market and can only be redeemed early after one year of subscription.

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