The government will issue 150 billion won ($102 million) worth of retail government bonds in August, with the five-year tranche expanded and the 10-year tranche reduced compared with the previous month.

The Ministry of Economy and Finance announced Wednesday that it would issue the bonds at that scale.

The central building of Government Complex Sejong, where the Ministry of Economy and Finance is located [Newsis]
The central building of Government Complex Sejong, where the Ministry of Economy and Finance is located [Newsis]

By tranche, the issuance breaks down as follows: 3 billion won in three-year coupon bonds, 7 billion won in three-year compound-interest bonds, 70 billion won in five-year bonds, 50 billion won in 10-year bonds and 20 billion won in 20-year bonds. The five-year tranche increased by 10 billion won from July, while the 10-year tranche shrank by 20 billion won.

Coupon rates will be set at the winning bid rates from July's auction of government bonds with matching maturities: 3.765 percent for three-year bonds, 4.165 percent for five-year bonds, 4.255 percent for 10-year bonds and 4.530 percent for 20-year bonds.

A spread will be added on top of those rates — 0.05 percentage points for five-year bonds, 0.5 percentage points for 10-year bonds and 0.4 percentage points for 20-year bonds. No spread will be applied to three-year bonds, in consideration of yields on comparable financial market products.

For investors who hold the bonds to maturity, the pre-tax expected returns are approximately 11.3 percent (an annual average of 3.8 percent) for three-year coupon bonds, 11.7 percent (3.9 percent annually) for three-year compound-interest bonds, 22.9 percent (4.6 percent annually) for five-year bonds, 59.1 percent (5.9 percent annually) for 10-year bonds and 161.8 percent (8.1 percent annually) for 20-year bonds.

The subscription period runs from Aug. 10 to Aug. 14. Retail investors can subscribe by visiting a branch of Mirae Asset Securities, the designated sales agent, or through its website and mobile application. If total subscriptions remain within the issuance limit for each tranche, investors will receive their full requested amount. If subscriptions exceed the limit, each investor will first be allocated up to 3 million won, with any remaining supply distributed in proportion to subscription amounts.

Meanwhile, retail investors may redeem early in August any retail government bonds issued between June 2024 and July 2025. However, early redemption entitles holders only to the principal and interest calculated at the original coupon rate at the time of purchase; the compound interest reflecting the added spread and the benefit of separate taxation on interest income will not apply.


y2k@heraldcorp.com