Bond Market Investor Sentiment Plummets Amid Sharp Interest Rate Hike... Government's 2 Trillion Won 'Emergency Buyback' Card

Ando-geol, 2nd Vice Minister of Ministry of Economy and Finance, Holds Emergency Meeting with Private Sector
Private Sector "Korean Interest Rate Rise Excessive"... Government Accepts Demands

Ando-geol, 2nd Vice Minister of Strategy and Finance. (Photo by Yonhap News)

[Sejong=Asia Economy Reporter Moon Chaeseok] Amid increasing volatility in the bond market due to rising interest rates, the government has unveiled an emergency bond buyback card worth 2 trillion won. As risks such as the possibility of tapering (reduction of asset purchases) in the U.S. grow and interest rates rise, the bond market has struggled to properly absorb issued and circulating bonds, prompting measures to stabilize the market. Private investors in the bond market demanded urgent measures, citing that the volatility in the Korean market is excessively high compared to the global interest rate uptrend, and the government accepted this request.

On the 2nd at 1:30 p.m., Deputy Minister of Strategy and Finance Ando Geol held an 'Emergency Meeting to Review the Government Bond Market' with private investors and experts, announcing, "We plan to conduct an emergency buyback worth 2 trillion won." Deputy Minister Ando said, "It is a time when stable management of the government bond market is more important than ever to support the fiscal role as an economic pillar and the smooth normalization of monetary policy."

According to the Ministry of Strategy and Finance, market participants attending the meeting evaluated the recent sharp rise in government bond yields, which hit a yearly high, by saying, "The volatility in our government bond market is excessive compared to the global increase." According to the Korea Financial Investment Association, the closing price of the 3-year government bond on the 1st was 2.108%, up 0.5 basis points (1bp=0.01 percentage points) from the previous day. This was the highest level in 3 years and 3 months since August 2, 2018, when it was 2.113%.

Private investors expressed the opinion that "this rise in interest rates is partly due to concerns about inflation and the normalization trend of domestic and foreign monetary policies, but mainly due to the sharp contraction of investment sentiment in the domestic government bond market since last month." They added, "There is a concern that volatility may expand again as the U.S. Federal Open Market Committee (FOMC) is likely to taper this month."

Deputy Minister Ando said, "The purchase items will be announced later, considering recent market volatility and other market conditions," and added, "We will continue to closely monitor the government bond market trends and proactively respond to market conditions through active policy coordination with the Bank of Korea if necessary."

For detailed information such as purchase items, please refer to the bidding announcement posted on the government bond market website.