KB Securities evaluated on the 27th that the Ministry of Economy and Finance's announced plan for government bonds issuance in July, which increases short-term bonds and decreases long-term bonds, shows a willingness to curb rising interest rates.
The Ministry of Economy and Finance announced the size of the competitive bidding for government bonds in July to be 18.2 trillion won. Although this is a decrease of 3 billion won from this month's 18.5 trillion won, Im Jae-kyun, a KB Securities researcher, explained that considering the usual decline in issuance size in the second half compared to the first half, the burden of size still continues.
However, looking at the tenor of government bonds, there is a clear movement to suppress rising interest rates. The Ministry of Economy and Finance increased the proportion of 30-year bonds in line with the demand from insurance companies from the beginning of the year to May and issued the proportion of 2-3 year bonds around 28%. In June, the proportion of 2-3 year bonds was increased to 34.5%. The proportions of 10-year and 30-year bonds were reduced to 11.9% and 30.3%, respectively.
In July, the proportion of 2-3 year bonds was expanded further to 36.8%. Conversely, the proportions for 10-year and 30-year bonds were reduced to 9.9% and 29.7%, respectively, which is a bigger cut than in June. Researcher Im said, "It is a preemptive response to the rise in long-term interest rates due to the second supplementary budget, among others."
Researcher Im predicted that the proportion of 2-3 year bonds would be expanded until September, after which the share of long-term bonds would be increased again. This is due to the potential for strong long-term demand considering the decline in long-term leading interest rates and the passive fund demand following the scheduled inclusion in the World Government Bond Index (WGBI) in April 2026.
Researcher Im noted, "Although concerns regarding the 2026 budget proposal, which will be announced at the end of August, still remain, as fears in the market grow, we must also consider the possibility that the Ministry of Economy and Finance may choose to further reduce the proportion of long-term bonds." He added, "As expectations for a rate cut by the Bank of Korea retreat, the lower bound for the 3-year bond interest rate is seen at 2.4%," and said, "If the issuance size of 3-year bonds increases and the issuance size of 10-year bonds decreases, the 10-3 year spread is expected to come under further pressure."