MINISTRY OF STRATEGY AND FINANCE
Embargo: 17:00, August. 27, 2009 Release Date: 16:30, August. 27, 2009
Contact Information: KyungYong Lee : 02-2150-5132 (Government Bond Policy Division)
Korea Treasury Bond Issuance Plan from September
The Ministry of Strategy and Finance has announced ‘A Scheme for Smoothing KTB Issue’ on March 25, 2009 in order for the market to absorb the KTB volume increased in line with the supplementary budget.
- Given this, the issue volume of KTBs* for market stabilization has decreased by KRW7.5 trillion. The total issue volume of KTBs is adjusted from KRW89.1 trillion (issue ceiling in the extra budget) to KRW81.6 trillion.
* KTBs used for the stabilization and facilitation of the market such as maturity dispersion and boost of liquidity in the market
- Increase the proportion of KTBs with short-term maturity such as 3-year and 5- year KTBs which are absorbed well in the market.
- Investigate the issuance of short-term KTB (maturity less than 1 year) and Floating Rate KTB in consideration of the market condition.
A recent change in KTB supply and demand and the market condition
- (Issue volume) A considerable volume has been issued until August than its initial plan. As a result, the burden for issue volume hereafter is mitigated substantially.
* KTBs of KRW58.3 trillion have been issued during the period of January to August, which is KRW6.0 trillion larger than the initial plan of KRW52.3 trillion. Accordingly, average monthly issue volume can be reduced (initially KRW7 trillion level → KRW5.8 trillion from September)
Press Release
MINISTRY OF STRATEGY AND FINANCE
- (Composition of short- and long-term KTBs) A phenomenon where the fund in the market remains in the short-term financial products less than 6 months is being eased. In addition, there is an increase in demand for long-term bonds.
* Bid-to-cover ratio in 10-year KTB auction in 2009: (Jan) 69% (Mar) 121% (May) 145%
(Aug) 159%
Reflecting the above fact, the KTB issuance plan will be changed hereafter.
- (Issue volume) In 2009, the issue volume of KTBs has increased from KRW81.6 trillion to KRW85.6 trillion.
- The size of KTB issue for fiscal need will be maintained at the initial level (KRW 77.6 trillion). However, a portion(KRW4 trillion)* of KTBs for market stabilization(KRW7.5 trillion) of which the issuance has been suspended will be issued. This issue will be utilized for the market stabilization such as maturity dispersion(buy-back) or boost of liquidity(conversion offer for KTBs)
* KTBs worth KRW2 trillion for buy-back and KRW2 trillion for conversion offer
- Following the increase in the volume, the average monthly issue volume from September to December will be maintained at the level of KRW7 trillion as announced in ‘A Scheme for Smoothing KTB Issue’.
* The average issue volume of competitive biddings is at the level of KRW5.8 trillion during the period of September to December.
MINISTRY OF STRATEGY AND FINANCE <Modified KTB Issue Volume Monthly Issue Volume>
(unit :KRW trillion)
Plan (Sept Dec)∼ Annual
Result (Jan~
Aug)
Initial Change Rise
Initial Change Rise Total issue 58.3 23.3 27.3 4.0 81.6 85.6 4.0 Fiscal need 56.3 21.3 21.3 - 77.6 77.6 - Market
stabilization
2.0 2.0 6.0 4.0 4.0 8.0 4.0
Average monthly issue
7.3 5.8 6.8 1.0 6.8 7.1 0.3
Competitive bidding
7.0 5.3 5.8 0.5 6.5 6.6 0.1
Conversion offer 0.3 0.5 1.0 0.5 0.3 0.5 0.2
(Composition of short- & long-term KTBs) Increase KTBs with long-term maturity of more than 10 years.
- Increase the proportion of long-term KTB issue for the purpose of achieving policy goals such as maturity dispersion and fostering of long-term bond market with responding to a rise in demand for long-term bonds.
*Considering the preference for short-term bonds in the market at the beginning of this year, MOSF has reduced the proportion of long-term KTB issue in 2009.
MINISTRY OF STRATEGY AND FINANCE
< Composition of KTB Issue by Maturity >
3 year 5 year 10 year 20 year
2008 result 26.0% 39.6% 24.9% 9.5%
2009 initial plan 30 40%∼ 35 45%∼ 10 25%∼ 5 10%∼ Plan after Sept. 25 30%∼ 35 40%∼ 20 30%∼ 5 15%∼
The issuance of short-term KTBs less than 1 year and Floating Rate KTB will be examined as a long-term task for systemic improvement.
- (Short-term KTB) Take into account the mitigation of burden for absorbing KTB volume and a decline in liquidity followed by the expansion of KTB types at the issuance of short-term KTBs.
- (Floating Rate KTB) Consider the fact that there is not much market demand for Floating Rate KTB.
(Anticipatory Effect) These comprehensive measures mentioned above are expected to make a contribution to the market stabilization through maturity dispersion and liquidity improvement with KTBs being absorbed well in the market.
- The increase in the issuance of long-term KTBs are anticipated to contribute to the stable financing of fiscal fund and the facilitating of long-term bond market owing to maturity dispersion.
( <Appendix 1> September KTB Issuance Plan <Appendix 2> August KTB Auction Result
MINISTRY OF STRATEGY AND FINANCE
Appendix 1 ’September Korea Treasury Bond Issuance Plan
The Ministry of Strategy and Finance plans to issue Korea Treasury Bonds worth 5,603 billion Won in September 2009 through competitive auctions.
1) 5,603 billion Won will be issued through competitive auctions.
z 3-year KTB worth 1,103 billion Won scheduled to be issued on September 8 will be fungible with "KTB0400-1206."
z 5-year KTB worth 2,300 billion Won scheduled to be issued on September 15 will be newly issued in "KTB ****-1409."
z 10-year KTB worth 1,400 billion Won scheduled to be issued on September 22 will be fungible with "KTB 0575-1809."
z 20-year KTB worth 800 billion Won scheduled to be issued on September 29 will be fungible with "KTB 0550-2803.
2) Non-competitive purchasing option
z (Non-competitive purchasing option I). For individual investors participating in competitive biddings, 1,121 billion Won KTB, not more than 20% of the issuance amount planned in the competitive biddings, will be allocated first at the accepted bid rate
z (Non-competitive purchasing option II) For each primary dealer(PD), the non-competitive purchasing option is granted whereby the PD can purchase 10% of the accepted bid amount (up to 25% for top five PDs and 15% for the next top five PDs) through the non-competitive biddings. In addition, 3 business days is given to PDs to purchase them after the auction day.
MINISTRY OF STRATEGY AND FINANCE
z An exercise rate in a PD’s non-competitive purchasing option is the highest accepted bid rate of KTB in competitive biddings.
- September Issuance Schedule for KTB Auction -
(Unit: billion Won) Classification
Auction Date Settlement
Date
Issue Date 3 year
5 year
10 year
20 year
Nominal Sept. 7 (Mon) Sept. 8 (Tue) June 10 2009 1,103
Nominal Sept. 14 (Mon) Sept. 15 (Tue) Sept 10 2009 2,300 Nominal Sept. 21 (Mon) Sept. 22 (Tue) Sept. 10 2008 1,400
Nominal Sept. 28 (Mon) Sept. 29 (Tue) Mar. 10 2008 800
* Financial Support: The fund of approximately 2 trillion Won is scheduled to be offered in September – The fund will be provided at low interest rates if PDs present their holding KTBs as collateral.
3) A detailed plan for a conversion offer for KTBs in September is scheduled to be announced additionally at 17:00 on September 10, 2009.
MINISTRY OF STRATEGY AND FINANCE
Appendix 2
August Treasury Bond Auction Result
●
Korea Treasury Bonds worth 7,940 billion Won have been issued in August, 2009< 2009 August KTB Auction Result >
(unit: billion Won,%) Competitive bidding Non-competitive
purchasing optionⅡ Classification
Auction date
Issue (planned)
Issue volume (accepted
rate ,%) (A)
Period
Issue volume
(B)
Total (A+B)
3 year KTB
(KTB 0400-1206) ‘09.8. 3 2,283 2,511
(4.34) ’09. 8. 3 ~ 8. 6 - 2,511
5 year KTB
(KTB 0475-1403) ‘09.8.10 2,600 2,645
(4.99) ’09. 8 . 10 ~ 8 .13 272 2,917
10 year KTB
(KTB 0575-1809) ‘09.8.17 1,300 1,384
(5.50) ’09. 8. 17 ~ 8. 20 255 1,639
20 year KTB
(KTB 0550-2803) ‘09.8.24 700 776
(5.64) ‘09. 8. 24 ~ 8. 27 97 873
Total 6,883 7,316 624 7,940
