contents go

KDI - Korea Development Institute

KDI - Korea Development Institute

SITEMAP

Popular Search Terms

HOT ISSUE

KDI News What‘s Up Newsletter Vol.29

The 29th issue of the KDI What's Up newsletter is now available!

January 20, 2026
KDI FOCUS Enhancing the Prudential Framework for Securities Firms

To enhance risk sensitivity, the NCR framework should revert to its pre-2016 structure for large firms and adopt tailored regulations for smaller firms.

December 17, 2025
KDI NEWS Global Carbon Market Investment Forum: Summary of Discussions and Outcomes

hosted by MOEF and organized by KDI, took place in Seoul on December 11-12, 2025, bringing together global stakeholders to explore pathways for carbon markets aligned with Article 6 of the Paris Agreement.

December 11, 2025
Economic Outlook KDI Economic Outlook 2025-2nd Half

The Korean economy is expected to grow by around 1.8% in 2026, as export growth slows but domestic demand recovers.

November 11, 2025
KDI FOCUS The Impact of Demographic Change on Household Debt

Korea's household debt-to-GDP ratio, which has risen over the last two decades due to intergenerational asset and housing accumulation, is expected to reverse as population aging slows longevity gains, requiring coordinated financial and labor reforms for stability.

August 05, 2025
KDI NEWS 2025 Knowledge Exchange Days (KED) Event Successfully Concludes with Vibrant Participation

Hosted by the Ministry of Economy and Finance (MOEF) and managed by the KDI GKEDC Operating Team, successfully took place on November 6-7, focusing on “Integrated Solutions for Climate Action”

December 09, 2025
KDI FOCUS Improving Regulations on Abuse of Superior Bargaining Position by Digital Platforms

In regulating the unfair practices of online platforms, it is necessary to improve the institutional framework by alleviating the burden of identifying victims and considering the potential for enhancing the efficiency of platform intermediation.

October 22, 2025
BACK
HOME
BACK

Reports

Search results : 1,262

12345678910
HOT ISSUE
Join our Newsletter

World's Leading Think Tank, Korea Development Institute

Security code

We reject unauthorized collection of email addresses posted on our website by using email address collecting programs or other technical devices. To access the email address, please type in the characters exactly as they appear in the box below.

captcha
KDI Staff Information

Please enter the security code to prevent unauthorized information collection.

KDI Staff Information

Please check the contact information.

OK
KDI Staff Information

Please check the contact information.

OK

Summary

Research Monograph KOR The Impact of Increased Government Bond Issuance and Policy Directions
This study analyzes the repercussions of the sharp increase in government bond issuance following the economic crisis induced by COVID-19. The surge in the issuance of government bonds in South Korea was substantial, driven by the need for financial resources to support expansive fiscal policies in response to the pandemic. As government bond issuance rises, so does the yield on government bonds. Given that the demand in the financial market comprises households, businesses, the government, and external sectors, the increased issuance not only affects government bond yields but also leads to a rise in interest rates faced by households and businesses.

Conversely, the study explores the impact of government bond buy-backs on yield changes, offering a direction opposite to that of increased issuance. Utilizing a dynamic Nelson-Siegel model with macro factors, including macroeconomic variables, the study estimates changes in the yield curve resulting from both increased issuance and buy-backs. Empirical analysis reveals that a 1 trillion KRW increase in government bond issuance leads to a 2.5 to 2.9 basis points rise in yields, particularly pronounced in the medium to long-term maturities. Conversely, a 1 trillion KRW increase in government bond buy-backs results in a 1.9 to 2.1 basis points decrease in yields, with a more significant impact on medium to long-term maturities with relatively less demand.

Moving on to domestic demand factors, the study examines the influence of macroprudential regulations on government bond yields. Specifically, it analyzes the impact of restrictions on securities firms' participation in the call market and banking sector liquidity regulations, such as the Liquidity Coverage Ratio (LCR). These regulations, introduced to maintain stability in financial systems post-global financial crisis, have direct and indirect effects on government bond demand, consequently influencing market interest rates and resource allocation.

The analysis indicates that restricting securities firms' call market participation to below 25% of equity leads to a substantial increase in securities firms' participation in the repo market. Consequently, the demand for government bonds by securities firms increases, resulting in a yield decrease of approximately 10.8 to 12.5 basis points. Similarly, the phased introduction of LCR regulations leads to increased demand for government bonds by banks, contributing to a yield decrease of around 6.1 to 7.3 basis points. These findings underscore the importance of considering the ripple effects on financial markets through government bond demand when adjusting the intensity of financial stability regulations.

Lastly, the study examines the impact of external uncertainties, represented by global volatility (VIX), on foreign capital flows and exchange rates. Traditionally, an increase in VIX corresponds to capital outflows and currency depreciation. However, recent observations indicate a decrease in the magnitude of these effects, suggesting a shift in the behavior of foreign investors in government bonds. The study concludes by highlighting the need to consider the potential effects on financial markets through government bond demand when adjusting or introducing financial stability regulations in the future.