Citi | Korea Economics: Limited Scope for Near-Term Bond Market Stabilization Measures
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Korean government bond yields surged on 15 September, with 3-year and 10-year KTB yields at 4.09% and 4.60%—the highest since October 2023 and October 2022 respectively—yet Citi sees limited scope for near-term stabilization measures from the Bank of Korea or the Ministry of Economy and Finance. On 11 September the BoK announced a KRW1.2tn outright KTB purchase for 14 September, but framed it as a technical operation for maturities rolling off its balance sheet rather than market stabilization; eligible bonds were all off-the-run 10- and 20-year KTBs. The BoK's KTB holdings have fallen from KRW32.7tn (5.6% of assets) in October 2022 to KRW24.7tn (3.9%) in July 2026, and Citi estimates scheduled redemptions will reduce them by a further KRW2.1tn in 2H26E, KRW4.2tn in 2027E and KRW5.4tn in 2028E, leaving roughly KRW4-5tn of annual maintenance-buying capacity given repo operation needs. Fiscal channels are also constrained: under Article 55-2 of the National Fiscal Act, 2026 revenue must be re-estimated by end-September; Citi assumes upside of up to KRW50tn versus the KRW701tn first supplementary budget assumption, prioritized for the Future Response Fund. The 2026 KTB issuance plan (KRW226tn) could be cut by at most KRW5tn, mainly trimming 4Q26 ultra-long supply.
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