The Bank of Korea announced Wednesday it will purchase 1.5 trillion won ($1.1 billion) in government bonds through outright purchases on January 9, marking the first such operation in three years and two months since September 2022 during the COVID-19 pandemic.
"We will conduct outright purchase auctions for 5-year, 10-year, and 20-year government bonds, considering the need to expand securities available for repurchase agreement (RP) sales," the central bank said.
While the stated purpose is to replenish government bond holdings for RP operations, market observers expect the BOK's purchase of long-term bonds to inject liquidity and push down government bond yields.
Government bond yields have been rising recently due to delays in BOK rate cuts and concerns over large-scale bond issuance stemming from next year's expansionary fiscal policy.
In the Seoul bond market Wednesday, the 3-year government bond yield rose 4.0 basis points from the previous session to close at 3.034 percent. The 10-year yield climbed 4.3 basis points to 3.401 percent. The 5-year and 2-year yields increased 4.1 basis points and 2.1 basis points to 3.239 percent and 2.847 percent, respectively. The 20-year yield rose 1.7 basis points to 3.340 percent.
"The recent rise in yields was partly influenced by changes in the BOK's stance, so authorities likely felt the need to provide some supply-demand support," said Jeong Yong-taek, chief economist at IBK Investment & Securities. "This outright purchase should have the effect of capping the upper range of yields."
