Korea weighs deeper Treasury bond issuance cuts, emergency buybacks

The government is considering further reducing Treasury bond issuance as a surge in global bond yields, led by the United States, spills into Korea.

“We will closely monitor developments in the Treasury bond market and consider further reducing government bond issuance if necessary,” Deputy Prime Minister and Minister of Finance and Economy Lee Hyoung-il said at his first market situation assessment meeting since taking office, held at the Korea Federation of Banks in Seoul on Friday.

“We will also work closely with relevant agencies to take market stabilization measures, including emergency buybacks, depending on market conditions.”

The government also announced Thursday that it would cut October Treasury bond issuance by 5 trillion won ($3.7 billion) from its original plan.

It also plans to conduct 3.5 trillion won worth of buybacks involving two-, three-, five- and 10-year Treasury bonds. A buyback involves the government repurchasing bonds already in circulation before maturity, which boosts demand for bonds and helps ease upward pressure on yields.

The government is moving to stabilize bond supply and demand as a sharp rise in global bond yields adds upward pressure to domestic rates. The yield on the 10-year U.S. Treasury note climbed as high as 5.338 percent in intraday trading Thursday, its highest level since 2002.

Korea’s bond market has also come under pressure.

“The yield on the three-year Treasury bond has risen above 4 percent, with market interest rates remaining at elevated levels,” Minister Lee said. “Yields have risen broadly across the bond market beyond Treasury bonds, while credit spreads have also widened this year.”

Persistently high interest rates could increase refinancing burdens for lower-rated companies seeking to roll over corporate debt.

Friday’s meeting was also attended by Bank of Korea Gov. Shin Hyun-song, Financial Services Commission Chairman Lee Eog-weon, Financial Supervisory Service Gov. Lee Chan-jin and Minister of Land, Infrastructure and Transport Hong Jee-sun.

The meeting had previously brought together the country’s four top finance officials, known as the F4, but was expanded on Friday to include Hong.

“We will make this a meeting that comprehensively reviews the macroeconomy and the financial, foreign exchange and real estate markets within a single framework,” Finance Minister Lee said. “We will closely examine where risks are emerging and where they could spread.”

BY AHN HYO-SEONG [[email protected]]