Government Bond Yields Rise Across the Board on Supplementary Budget Increase Concerns... 3-Year at 2.483%

If the Increase Is Reflected, the Budget Will Approach 40 Trillion Won
Estimated Government Bond Issuance in the Second Half: 115.7 Trillion Won
Foreign Investors Also Net Sellers of Government Bond Futures

On July 2, government bond yields rose across the board due to the possibility of an increase in the supplementary budget.

On this day, in the Seoul bond market, the yield on three-year government bonds closed at 2.483% per annum, up 2.9 basis points (1bp=0.01 percentage point) from the previous trading day.

The 10-year yield rose by 4.8 basis points to 2.832% per annum. The five-year and two-year yields climbed by 3.8 basis points and 1.8 basis points, respectively, closing at 2.619% and 2.461% per annum.

The 20-year yield increased by 3.4 basis points to 2.824% per annum. The 30-year and 50-year yields each rose by 2.7 basis points, recording 2.723% and 2.621% per annum, respectively.

The bond market focused on the possibility of an increase in the second supplementary budget. Initially, the government announced a second supplementary budget proposal totaling 30.5 trillion won (20.3 trillion won in expenditures and 10.2 trillion won in revenue).

Employees at the Hana Bank dealing room in Jung-gu, Seoul are working. Photo by Jo Yongjun

However, it was reported on this day that during the preliminary review by the National Assembly's standing committee, the budget was increased by approximately 9.5 trillion won compared to the government's original proposal. If this increase is fully reflected, the size of the second supplementary budget would approach 40 trillion won.

Lim Jaekyun, a researcher at KB Securities, stated, "If the additional 9.5 trillion won is financed through the issuance of government bonds, the total amount of government bonds issued this year would expand from 229.8 trillion won to 239.3 trillion won. Given that 123.6 trillion won in government bonds have already been issued in the first half of this year, the amount that needs to be issued in the second half is estimated at 115.7 trillion won."

He added, "Concerns about a potential increase in the size of the second supplementary budget could add uncertainty to interest rates. This is because the larger the second supplementary budget becomes, the greater the concern that expenditures in the 2026 budget, which will be announced at the end of August, could also be further expanded."

Foreign investors also added upward pressure on government bond yields by net selling government bond futures. On this day, foreign investors were net sellers of 10,607 contracts of three-year government bond futures and 486 contracts of 10-year government bond futures, respectively.