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South Korea Plans Record 2021 Bond Sales to Fund Stimulus

ForexAug 31, 2020 08:27PM ET
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© Bloomberg. Pedestrians walk through a near empty street in the Itaewon district of Seoul, South Korea, on Friday, Aug. 21, 2020. South Korea's fight against the virus is at a critical juncture as an infection flareup threatens to spread nationwide, said the country's Vice Health Minister Kim Gang-lip. Photographer: Jean Chung/Bloomberg

(Bloomberg) -- South Korea is gearing up for another year of record bond issuance as the government prepares to boost its budget by 8.5% in 2021.

The finance ministry will issue as much as 172.9 trillion won ($145.6 billion) of sovereign debt in 2021, based on its budget proposal, according to An Il-whan, the Second Vice Minister of the Finance Ministry.

This would eclipse the 167 trillion won planned for 2020, which came as the impact of the coronavirus forced policy makers to compile three supplementary budgets. It was initially envisaged that issuance this year would be 130.2 trillion won.

“This is a pretty big size,” said Shin Earl, a fixed-income analyst at SK Securities Co. “It’s inevitable for bonds to weaken further as the impact of the mismatch between supply and demand continues to intensify.”

The deluge of supply coming to market was evident in rising yields seen in August, which gathered pace last week when Governor Lee Ju-yeol damped hopes of the Bank of Korea would stepping up purchases anytime soon.

The yield of the nation’s 10-year bond rose for a sixth day, gaining 3 basis points to 1.54% on Tuesday.

Of the total amount planned for 2021, 63.2 trillion won would be used to repay maturing debt, according to a finance ministry statement. This would mean net new issuance of 109.7 trillion won.

Korea Set for Record Debt Burden After Budget Boost

Up to 89.7 trillion won would be issued as deficit-financing debt, while up to $1.5 billion would be foreign-exchange stabilization bonds, according to a ministry official who asked not to be named because the person isn’t authorized to speak publicly about the details.

The government will submit its 555.8 trillion won budget bill to parliament on Thursday. The final size of the budget and bond sales will be released after approval from lawmakers, which is expected later this year.

(Updates fourth paragraph with strategist comment and sixth paragraph with latest bond prices.)

©2020 Bloomberg L.P.

South Korea Plans Record 2021 Bond Sales to Fund Stimulus
 

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