March Issuance Set at 180 Billion Won
10-Year Bonds Increased by 10 Billion Won Due to High Demand
The government will increase the March issuance volume of retail government bonds, which have been enjoying strong demand since the beginning of the year, to 180 billion won. This comes as the bonds have broken last year's sluggish trend in both short- and long-term maturities in the second half, with oversubscription continuing for two consecutive months at the start of the year.
On February 27, the Ministry of Economy and Finance announced that it would issue a total of 180 billion won in retail government bonds in March: 60 billion won in 5-year bonds, 90 billion won in 10-year bonds, and 30 billion won in 20-year bonds.
The issuance volume of the 5-year and 20-year bonds will remain at similar levels to the previous month, while the most popular 10-year bond will see an increase of 10 billion won.
For the February issuance, all maturities were oversubscribed, resulting in a strong performance. The 5-year bond saw subscriptions reach 114.9 billion won against an offering of 60 billion won, resulting in a competition rate of 1.91 to 1. The 10-year and 20-year bonds were also oversubscribed, with competition rates of 2.75 to 1 and 2.2 to 1, respectively.
The coupon rates will be based on the winning yields of the same tenor government bonds issued in February (3.390% for 5-year, 3.710% for 10-year, and 3.580% for 20-year bonds). A spread of 0.2% for the 5-year, 1.0% for the 10-year, and 1.28% for the 20-year bonds will be added to these rates.
If held to maturity, the pre-tax cumulative yield (based on compound annual rates) will be approximately 19% for the 5-year bond (average annual yield of 3.9%), about 58% for the 10-year bond (average annual yield of 5.8%), and around 158% for the 20-year bond (average annual yield of 7.9%).
If the total subscription amount is within the monthly issuance cap for each maturity, the entire amount will be allocated. If the total subscription exceeds the cap, an amount up to the standard allocation (3 million won) will be distributed equally, and the remaining bonds will be allocated proportionally to subscription amounts. The allocation results will be announced on the business day following the end of the subscription period, which runs from March 11 to March 17.
Retail government bonds allow investors to benefit from both the coupon rate and the additional spread, compounded annually, if held to maturity. Interest income is taxed separately at 14% for amounts up to 200 million won, so investors do not need to worry about comprehensive financial income taxation. To encourage holding to maturity, both principal and interest are paid in a lump sum at maturity. The bonds cannot be traded in the market, and early redemption is only allowed after one year from subscription.
Meanwhile, individual investors will be able to redeem retail government bonds issued between June 2024 and February of last year during March. However, in this case, only the principal and interest based on the coupon rate at the time of purchase will be returned; compounded interest including the additional spread and the separate interest income tax benefit will not be provided.
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