South Korea plans to boost issuance of longer-dated bonds to 30 percent

South Korea's government plans to boost the issuance of longer-dated bonds to about 30 percent of the total this year from 25 percent in 2016, the head of the treasury bureau at the finance ministry said on Friday. In an interview with Reuters in Seoul, Wi Seong-bak, director general of the treasury bureau, said the plan is to gradually increase the issuance of 20-year, 30-year and 50-year bonds.
"Last year it was about 25 percent, so it will be of about 5 percent more," Wi said, referring to the proportion of the longer-dated bonds that will be sold this year. Demand for ultra-long bonds have been increasing in Asia's fourth largest economy as life insurers and long-term investors struggled to manage their portfolio under persistently low interest rates and aging population.
The government plans to issue 103.7 trillion won of treasury bonds this year, of which about 45 percent will be three- to five-year notes. Another 25 percent of the bonds will be of 10-year maturity, and the remaining 30 percent will be 20-year, 30-year and 50-year bonds. The flatness of bond yield curves in South Korea shows growing demand for longer dated notes, which the government will take into account as it sets policies for the bond market, Wi said.
Of the three maturities in longer-dated bonds category, the government will issue about 1 trillion won of 50-yr bonds this year, the nation's longest-ever maturity. It could flexibly adjust the amount depending on investor demand, Wi added. The government sold its first 50-year bonds in October last year, to test investor demand for higher yields and secure stable government finances. Asked to comment on the increasing investor appetite for the nation's inflation-linked bonds and whether the trend will continue, Wi declined to give a view, but acknowledged that transactions are active.
"When we first launched it years ago, demand was weak.. but it seems there isn't any need to encourage transactions now," Wi said. Inflation expectations this week shot up to the highest level since September 2014, with the breakeven rate jumping to 1.288 percent on Thursday from a cyclical low of 0.144 percent in April 2015, data compiled by Reuters show.