SEOUL, March 26 (AJP) -South Korea will buy back 5 trillion won ($3.3 billion) of sovereign bonds in a rare market intervention to cap a surge in yields that have overshot the policy rate by more than 100 basis points amid the prolonged Middle East conflict.
The Ministry of Economy and Finance (MOEF) said Thursday it will conduct the buyback on Friday, targeting Korea Treasury Bonds (KTBs) with maturities ranging from two to 10 years — one of the largest liquidity injections into the local bond market in recent years.
The move comes as benchmark yields have spiked sharply, with the three-year KTB rising to 3.558 percent and the 10-year to 3.859 percent on Wednesday, both the highest levels since late 2023. The surge reflects a rapid sell-off in bonds as investors price in geopolitical risk, a weaker won and persistent inflation pressure.
The buyback forms part of a broader emergency package that includes tax cuts, policy financing and a supplementary budget, as authorities shift into what they described as a “wartime” economic response to the monthlong Gulf conflict.
“In the face of a grave wartime situation, we will mobilize all possible policy tools and the optimal mix,” Deputy Prime Minister for Economy Koo Yun-cheol said at a press briefing.
The government said the intervention is aimed at preemptively containing excessive volatility and ensuring stable liquidity in the bond market, where yields have risen well above the 2.5 percent base rate.
Bond prices move inversely to yields, and the sell-off has been exacerbated by currency weakness. The won has breached the key 1,500-per-dollar level and continued to slide toward 1,510, adding to upward pressure on market rates.
MOEF said it will maintain round-the-clock monitoring of financial markets and coordinate closely with the Bank of Korea to deploy additional stabilizing measures if needed.
Whether the intervention will help to reverse the sentiment remains uncertain, unless the war ends and removes oil price-driven inflationary scare.
The buyback delivered only a mild lift to shorter-dated bonds while triggering a selloff at the long end, effectively inverting the policy’s intended signaling. The two-year government bond yield fell 2.2 basis points to 3.489 percent, with the three-year little changed at 3.552 percent. But yields further out the curve moved sharply higher: the 20-year jumped 3.9 basis points to 3.880 percent and the 30-year rose 4.6 basis points to 3.762 percent.
Rather than easing overall financing conditions, the move steepened the curve — a sign that investors see the intervention as a near-term liquidity patch, not a solution to underlying inflation and supply risks. In effect, the market is pricing in more pressure ahead, demanding higher compensation for holding long-dated debt even as the government steps in.
Immediate market response was lukewarm — and telling.
The buyback delivered only a mild lift to shorter-dated bonds while triggering a selloff at the long end, effectively inverting the policy’s intended signaling. The two-year government bond yield fell 2.2 basis points to 3.489 percent, with the three-year little changed at 3.552 percent. But yields further out the curve moved sharply higher: the 20-year jumped 3.9 basis points to 3.880 percent and the 30-year rose 4.6 basis points to 3.762 percent.
Rather than easing overall market conditions, the move steepened the curve — a sign that investors see the intervention as a near-term liquidity patch, not a solution to underlying inflation and supply risks.
In effect, the market is pricing in more pressure ahead, demanding higher compensation for holding long-dated debt even as the government steps in.
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