The government has reduced the issuance of government bonds by 5 trillion won in October to stabilize the bond market and is considering further cuts depending on market conditions, along with emergency buyback measures.
Deputy Prime Minister and Minister of Finance Lee Hyung-il made the announcement during his first market situation assessment meeting on October 2 at the Korea Federation of Banks. The meeting was attended by Bank of Korea Governor Shin Hyun-song, Minister of Land, Infrastructure and Transport Hong Ji-sun, Financial Services Commission Chairman Lee Ok-yeon, and Financial Supervisory Service Chairman Lee Chan-jin.
“The government will reduce the issuance of government bonds by 5 trillion won to stabilize the market,” Lee said. “We will also consider additional cuts to the bond issuance if necessary.” He added that the government would implement emergency buyback measures in coordination with relevant agencies based on market conditions.
This decision comes as rising domestic and international interest rates have increased the burden on the local bond market. Lee explained that following the U.S. Federal Reserve's interest rate hike on September 17, uncertainties in the Middle East and fluctuations in oil prices have led to a recent increase in the yield on 10-year U.S. Treasury bonds to 5.2%. He noted that the yield on three-year government bonds in South Korea has also exceeded 4.0%, indicating high market interest rates.
The government plans to assess the funding conditions for businesses. With rising interest rates across the bond market and widening credit spreads this year, there are concerns that sustained high rates could increase the refinancing burden for lower-rated companies.
Regarding the housing market, Lee noted that the upward trend in apartment prices in Seoul has eased for five consecutive weeks, and the number of housing permits and starts in Seoul from January to August has increased by over 40% compared to the previous year, indicating improved supply indicators. However, he acknowledged that price increases continue in areas outside Gangnam, and there is a time lag before actual occupancy, prompting plans to monitor market trends and review the implementation of existing supply measures.
The government is also pursuing reforms to foreign exchange regulations to promote the internationalization of the won. It plans to announce measures to relax regulations, including changing some capital transactions from prior notification to post-reporting and raising the reporting threshold. The government aims to finalize revisions to foreign exchange transaction regulations by the end of the year.
Participants at the meeting agreed that the flow of funds between financial and real estate markets could increase inter-market impacts. They decided to jointly assess the flow of funds, household debt, and potential risks in the financial and housing markets.
Lee emphasized the importance of detecting any early warning signs in the market during times of high domestic and international uncertainty, stating that the market situation assessment meetings would help identify potential risks and coordinate responses among relevant agencies.
* This article has been translated by AI.
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