South Korea to Cut October Treasury Bond Sales by $3.6 Billion, Using Excess Tax Revenue to Calm Yield Surge

South Korea's government will cut October Treasury bond issuance by 5 trillion won ($3.6 billion) from its original plan to rein in surging sovereign yields. The move effectively puts 5 trillion won of excess tax revenue into the government bond market. Officials estimate it will ease supply-demand strains and reduce annual interest costs by about 200 billion won ($145 million).

In its "October 2026 issuance plan for Treasury bonds, fiscal financing bills and won-denominated foreign exchange stabilization bonds" released on October 1, the Ministry of Economy and Finance said it will issue 12 trillion won ($8.7 billion) of Treasury bonds this month, down 5 trillion won from the previous plan.

The government will use excess tax revenue instead of bond sales to fund 5 trillion won ($3.6 billion) of fiscal projects that had been scheduled to be financed through Treasury issuance this month. That means about 5 trillion won of new government bond supply that would otherwise have entered the market this month will be removed. In turn, that should add downward pressure on yields.

The measure will also support public finances. With Treasury yields recently in the 4% range, reducing new issuance by 5 trillion won would save more than 200 billion won ($145 million) in annualized interest costs.

The government is also pursuing a plan to set aside an amount equivalent to the excess tax revenue in funds including a future response fund. But with Treasury yields having risen sharply, it chose to use the extra revenue first to reduce sovereign bond supply in order to stabilize the bond market and lower interest costs. Some expect the government to cut Treasury issuance further in November and December, reducing supply by more than 10 trillion won ($7.2 billion) over the October-December period. A ministry official said the government will monitor market conditions and consider additional reductions in bond issuance if needed.

The move is also viewed as reflecting the position of Deputy Prime Minister and Finance Minister Lee Hyoung-il. While the foreign-exchange and stock markets have shown relative stability, Treasury yields have continued to climb. Rising government bond yields not only increase the state's borrowing costs, but can also lift private-sector funding costs, including corporate bond yields, bank debt costs and lending rates.

Kim Ik-hwan, Hankyung.com reporter lovepen@hankyung.com