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The effects of increased Korea Treasury Bond issuance on the yield curve

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  • Kim, Meeroo
  • Hong, Jong Soo

Abstract

This study examines the impact of the sharp increase in Korea Treasury Bond (KTB) issuance following the COVID-19 crisis and analyzes the effects of bond buybacks as a policy countermeasure. Using a dynamic Nelson-Siegel model with macroeconomic factors, we estimate the effects of changes in the bond supply on the yield curve. Empirical results show that a KRW 1 trillion increase in KTB issuance raises yields by approximately 2.5 to 2.9 basis points, with stronger effects observed in the post-COVID period and in medium- to long-term maturities with weaker demand. Conversely, emergency buybacks reduce yields by about 1.9 to 2.1 basis points, with similar maturity-dependent dynamics. These findings highlight the importance of demand conditions in amplifying the interest rate effects of government bond supply shocks.

Suggested Citation

  • Kim, Meeroo & Hong, Jong Soo, 2026. "The effects of increased Korea Treasury Bond issuance on the yield curve," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 48(2), pages 1-35.
    • Handle: RePEc:zbw:kdijep:341451
    DOI: 10.23895/KDIJEP.2026.48.2.1
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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