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

Meeroo Kim and Jong Soo Hong

KDI Journal of Economic Policy, 2026, vol. 48, issue 2, 1-35

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.

Keywords: Government bond issuance; Treasury buyback; Yield curve; Dynamic Nelson-Siegel model; COVID-19 (search for similar items in EconPapers)
JEL-codes: E43 E62 G12 H63 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kdijep:341451

DOI: 10.23895/KDIJEP.2026.48.2.1

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