The Korean government is preparing to deploy treasury bond buybacks as bond market volatility intensifies amid the Middle East conflict.
The ruling party and government held a "Middle East Crisis Economic Response Task Force" meeting at the National Assembly on the 16th, agreeing to prepare additional stabilization measures including treasury bond buybacks to address bond market instability.
Ahn Do-geol, a Democratic Party lawmaker serving as TF coordinator, said, "With government bond yields rising 20-30 basis points, stabilization is urgent. Fiscal authorities are also preparing buybacks."
A buyback is a mechanism where the government uses fiscal resources to redeem treasury bonds before maturity. It reduces the volume of bonds circulating in the market, easing upward pressure on yields. This measure has not been activated since September 2022, when both bond yields and exchange rates spiked.
The government is mounting an all-out effort to contain early-stage instability as financial market uncertainty expands, with international oil prices climbing to around $120 per barrel and bond yields surging since the Middle East war broke out. The Bank of Korea also moved to stabilize yields on the 10th by conducting outright purchases of 3 trillion won in treasury bonds—the largest single operation on record.
Korean bond markets have seen steeper yield increases than major economies. According to Meritz Securities, Korea's 10-year treasury yield rose 31.5 basis points from year-end through the 13th. Over the same period, Japan rose 19.4 basis points, while the U.S. and France increased just 11.0 and 10.9 basis points respectively.
Yoon Yeo-sam, a researcher at Meritz Securities, analyzed that "this appears to reflect the combined impact of oil and energy price shocks, concerns over expanded treasury supply, and uncertainty surrounding a supplementary budget."
However, the government clarifies that buybacks have not yet reached the execution stage. A Ministry of Economy and Finance official said, "We are preparing treasury buybacks so they can be implemented immediately if necessary."
This year's treasury bond issuance totals 225.7 trillion won. Of this, approximately 25.7 trillion won has been allocated for supply-demand adjustments including early redemptions, available for buybacks depending on market conditions.
