SEOUL, December 10 (AJP) - South Korea plans to issue a record volume of treasury bonds next year, raising oversupply concerns on the tepid debt market.
According to 2026 pipeline, the Ministry of Economy and Finance intends to issue 225.7 trillion won in treasury bonds.
Although the figure is 5.4 trillion won lower than this year’s issuance, the net increase in outstanding debt will reach 109.4 trillion won—25.7 trillion won more than the previous year and potentially the largest annual rise on record.
This year’s experience shows how tentative such plans can be: the government initially targeted 201.3 trillion won in issuance but ultimately expanded the total to 231.1 trillion won after a supplementary budget, raising the likelihood that next year’s issuance could also exceed its projected ceiling.
The surge in government borrowing is expected to push the national debt-to-GDP ratio above 50 percent for the first time, rising from 49.1 percent this year to 51.6 percent next year.
The International Monetary Fund has warned that South Korea’s debt ratio could climb to 130 percent by 2050 if the current trajectory continues, a level that would severely constrain fiscal flexibility.
A larger supply of treasury bonds typically places upward pressure on yields, and analysts warn that higher market interest rates could feed into bank lending rates, raising borrowing costs for businesses and households at a time when the domestic economy remains fragile.
The three-year government bonds yield 3.058 percent and five-year papers 3.259 percent, widening the spread with the base rate of 2.50 percent.
The burden of rising borrowing rates is apparent in the banking sector. As of the third quarter, non-performing loans at the four major banks—KB Kookmin, Shinhan, Hana, and Woori—rose 27.3 percent from the end of last year to 2.9 trillion won. Corporate loan NPLs increased 29 percent to 1.98 trillion won, while household loan NPLs climbed 23.7 percent to 923.4 billion won.
The market however is not without an upside. The country’s forthcoming inclusion in the FTSE World Government Bond Index is expected to draw between $50 billion and $80 billion in global investment as passive funds adjust their portfolios to include Korean sovereign bonds.
Kim Han-soo, a researcher at the Capital Market Research Institute, said the move would help stabilize financing conditions by attracting long-term foreign investors who have recently retreated due to the won’s depreciation and the widening interest-rate differential with the United States.
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