Emergency buybacks among stabilization measures under consideration as bond yields rise

Seoul home price gains ease for fifth consecutive week; supply measures to be monitored

Foreign exchange deregulation to advance with revision of forex transaction rules this year

Deputy Prime Minister and Minister of Economy and Finance Lee Hyung-il said Friday the government will reduce October government bond issuance by 5 trillion won ($3.68 billion) to stabilize the treasury bond market, and will consider further cuts if necessary. Emergency buybacks and other market stabilization measures will also be deployed depending on market conditions.

The government will also step up integrated monitoring of potential risks — including housing market trends, household capital flows and debt — to guard against spillover risks from capital moving between financial and real estate markets.

Deputy Prime Minister and Minister of Economy and Finance Lee Hyung-il poses for a photo before the start of a market situation review meeting at the Korea Federation of Banks building in Jung-gu, Seoul, on Friday. Pictured from left: Financial Supervisory Service Governor Lee Chan-jin, Minister of Land, Infrastructure and Transport Hong Ji-seon, Deputy Prime Minister Lee Hyung-il, Bank of Korea Governor Shin Hyun-song and Financial Services Commission Chairman Lee Eok-won. [Ministry of Economy and Finance]
Deputy Prime Minister and Minister of Economy and Finance Lee Hyung-il poses for a photo before the start of a market situation review meeting at the Korea Federation of Banks building in Jung-gu, Seoul, on Friday. Pictured from left: Financial Supervisory Service Governor Lee Chan-jin, Minister of Land, Infrastructure and Transport Hong Ji-seon, Deputy Prime Minister Lee Hyung-il, Bank of Korea Governor Shin Hyun-song and Financial Services Commission Chairman Lee Eok-won. [Ministry of Economy and Finance]

Lee chaired his first market situation review meeting since taking office on Friday at the Korea Federation of Banks building in Jung-gu, Seoul, where he outlined the government's response plans.

The meeting brought together the so-called "F4" — the four officials who steer economic and financial policy: Lee, Bank of Korea Governor Shin Hyun-song, Financial Services Commission Chairman Lee Eok-won and Financial Supervisory Service Governor Lee Chan-jin — along with Minister of Land, Infrastructure and Transport Hong Ji-seon.

"We will closely monitor treasury bond market trends and, if necessary, consider further reductions in bond issuance," Lee said. "We will also work in close coordination with relevant agencies to deploy market stabilization measures, including emergency buybacks, as market conditions warrant."

The government moved to cut bond issuance as rising global interest rates have increased the yield burden on the domestic bond market. Since the Federal Reserve raised rates on Sept. 17, the yield on the 10-year US Treasury has climbed to around 5.2 percent — its highest level since 2007. Domestically, the yield on three-year government bonds has also exceeded 4.0 percent.

Yields have risen broadly across bond markets beyond government securities, and credit spreads have widened this year. The government warned that if high interest rates persist, companies with lower credit ratings could face mounting refinancing burdens, and said it will continue to monitor bond market yields and issuance conditions in coordination with relevant agencies.

The meeting also addressed how to manage spillover risks between financial and real estate markets. Participants agreed that capital moving between the two markets could amplify cross-market effects, and committed to closely examining potential risks including capital flows, household debt and conditions in both the financial and housing markets.

In the housing market, the pace of apartment price gains in Seoul has eased for five consecutive weeks, and leading supply indicators have improved — housing permits and ground-breakings in Seoul rose more than 40 percent in the January-August period compared with the same period last year. However, the government noted that price increases continue in areas outside Gangnam and that a time lag exists between expanded supply and actual move-ins, making sustained policy action necessary.

The government plans to closely track housing market developments and strengthen on-site inspections to ensure previously announced supply measures are carried out without disruption.

The government will also push ahead with reforms to the foreign exchange system as part of efforts to internationalize the won. As a follow-up to the won internationalization roadmap announced July 19, it plans to build an offshore won settlement system and ease foreign exchange transaction regulations.

Having completed legislative amendments to regulate registered foreign institutions handling won-denominated transactions abroad, the government will soon announce plans to convert some capital transaction pre-approvals to post-transaction reporting requirements and raise the reporting threshold. It also aims to complete revisions to the foreign exchange transaction rules by year-end. Alongside this, the government will strengthen policy coordination among relevant agencies, including research into how the regulatory overhaul will affect markets and how to enhance prudential regulation and market monitoring.

"I intend to make this meeting a forum for comprehensively examining the macroeconomy and financial, foreign exchange and real estate markets as a single picture," Lee said. "We will not miss even the smallest warning signals in the market — we will detect them early and carefully trace where risks originate and where they could spread."


y2k@heraldcorp.com